One of the biggest stories in the commodities space at the moment is the collapse in the platinum price amid demand concerns.

The precious metal last week traded close to a 10-year low at $798 per ounce, compared with a $778 per ounce price recorded in October 2008. The latter was the result of the metal more than halving in value amid the global financial crisis.

Platinum spent the latter part of 2017 trading in a $900 to $1,000 range before the big decline this year.

The market is worried about a surplus of platinum and how a global trade war may also impact demand. Higher tariffs could make vehicles more expensive and lead to fewer car sales – something that is bad for platinum given its key role in catalytic converters.

The metal is already facing demand pressure from falling diesel car sales and expectations of a large pick-up in demand for electric vehicles over the next 10 years where catalytic converters won’t be needed.

Many platinum miners in South Africa are expected to be loss making at the current metal price, yet the industry hasn’t imposed widespread output reductions. There are political issues to consider as the country is unlikely to want to cut jobs in the sector.

At the moment the platinum sector doesn’t seem as if it will adapt to changing market conditions by flexing supply as you would perhaps see in other commodity markets. If the price decline gets worse the industry may have no choice but to impose tighter supply controls, just like we saw in the oil sector a few years ago.

We’ve seen long-term forecasts for platinum in the range of $850 to $1,200. Investment bank Jefferies forecasts $900 per ounce for the rest of the year, implying a more stable price environment.

Investors with an appetite for high risk may therefore wish to look at UK-quoted platinum miners, particularly if you believe the market has already priced in current negative issues.

We see two obvious stocks to buy. Anglo American (AAL) is the most exposed to platinum group metals of the big diversified miners. You also get exposure to many other commodities as a cushion should platinum not play out as expected. A lot of its earnings are derived from iron ore, coal and nickel.

Tharisa (THS) has a large scale, low cost platinum group metals and chrome mine in South Africa. (DC)

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