Platinum shares shine on PGM rally
The precious metals sector has been the standout performer on the JSE Limited this year. Both constituents of the Precious Metals Index — gold and platinum mining shares — have done equally well. Portfolio manager MIKE TOWNSHEND takes a closer look at what’s driving the rally.
A golden start for precious metals
The precious metals sector has advanced 78% in the first six months of 2025, far outpacing the 16% of the FTSE/JSE Capped All Share Index. Individual constituents, such as shares in Anglogold, have almost doubled year to date. Without this sector, the performance of the All Share Index would have fallen to below 10%.
Gold and platinum metals prices on a tear
Gold bullion continued its multi-year climb, briefly breaching $3,500 per ounce this year. Central bank buying is one of the main reasons for the price rise. The profitability of gold miners has surged, providing a solid underpin to the stellar performance of these shares. Foord has maintained meaningful exposure to the gold mining sector — mainly via Anglogold and, to a lesser extent, Gold Fields — as well as owning physical gold in our portfolios in South Africa and abroad. Investors have been richly rewarded.
Platinum shares — where we have some exposure — have also rallied strongly, but the reasons are less clear-cut. Broadly, the revenue make-up of the platinum miners is 40% platinum, 25% each from palladium and rhodium, and 10% from a variety of other minerals. After a decade of trading around $1,000 per ounce, the platinum price has surged by 40% since the beginning of May. The other platinum group metals (PGMs) prices have also risen, but less dramatically and from lower bases.
What's behind platinum's breakout?
It must be noted that PGMs are all small, illiquid markets where sudden changes in demand and supply can have an outsized impact on prices. Several factors appear to be behind the platinum rally:
Supply constraints: South Africa supplies over 70% of the world’s platinum. Stats SA data show a 16% drop in production in the first four months of 2025, although this is expected to recover over the rest of the year.
Jewellery substitution: The surging gold price has depressed gold jewellery sales, especially in China. Wholesalers are experimenting with platinum as a substitute precious metal for price-sensitive jewellery buyers. Platinum is less malleable than gold, so it will take time before new designs reach the retail market to assess the success of this strategy.
ETF demand: The rising platinum price has triggered speculative inflows into platinum ETFs. As always, momentum-driven buying can reverse quickly if sentiment shifts.
Longer term headwinds from electric vehicles
Over the medium to longer term, we believe the platinum group metals face serious structural headwinds. The primary source of demand remains catalytic converters in internal combustion engine (ICE) vehicles — they are essential for the reduction of toxic emissions from petrol and diesel vehicles.
China — the world’s largest vehicle market — now sells more cars than Europe and America combined. China has adopted battery electric vehicles (BEVs) faster than any other region in the world. Electric vehicles already account for 40% of total vehicle sales. Remember, electric vehicles do not burn fuel and therefore do not need catalytic converters.
We believe this rate of BEV penetration will spread to other regions. Even if total vehicle sales increase, the proportion of ICE vehicles — and thus demand for PGMs — should fall. Trucks are harder to electrify, but even here Chinese electric truck sales already exceed 10% of the total market.
PGM rally hard to sustain
While tighter emissions standards may support short-term demand through increased PGM loadings, this will not offset the structural decline tied to EV adoption. We believe the recent rally in platinum prices is likely to prove temporary. The near doubling in PGM share prices this year is unlikely to be supported by sustainably higher earnings. With valuations now stretched, downside risks are growing.