Platinum Market Squeeze: Tariffs and Speculation Drive Prices to Record Highs

Unprecedented Squeeze on the Platinum Market

The platinum market is currently experiencing an unprecedented squeeze, as tariff fears and speculative buying are pulling metal from key London and Zurich markets into U.S. warehouses. This has led to spot platinum prices soaring to new all-time highs, and the implied cost to borrow the metal for a month reaching its highest level since 2002.

Soaring Prices and Borrowing Costs

Spot platinum prices have surged, while the implied costs to borrow the metal for one month have reached their highest levels since 2002. Platinum flowing into facilities linked to NYMEX hit the second-highest number ever recorded last Thursday.

Impact of Trade Threats

President Trump's erratic trade threats led to over 500,000 ounces of platinum flowing into U.S. warehouses earlier this year to capture tariff-panic-fueled premiums. This surge mirrors what has been seen in industrial metal markets like copper.

Supply Scarcity

The unusual scarcity of platinum in London, the dominant over-the-counter spot market, has driven the annualized one-month borrowing costs of the precious metal to nearly 40%, even though this rate is close to zero most of the time.

Market Outlook

While platinum prices retreated slightly on Tuesday, there is little sign that the market tightness is easing. According to Jonathan Butler of Mitsubishi International, the price structure known as “backwardation” – where buyers pay higher prices for the nearest deliveries to secure supply – has only intensified this month.

Contributing Factors

Trevor Raymond, head of the World Platinum Investment Council (WPIC), suggested that the higher leasing rates may also be due in part to platinum users being skeptical of the sharp price rise. He added that because the metal had been oscillating between $950 and $1100 an ounce for years, many market participants did not believe this rise was sustainable.

Tariff Implications

U.S. platinum inventories began to decline after the U.S. announced the first tariff exemptions in April, and prices fell back in line with those in London and Zurich. However, after Trump's surprise announcement of a 50% tariff on copper, the U.S. premium surged again.

Tariff Risks

While platinum remains exempt, Trump's tariff on copper “has significantly heightened white metal tariff risk,” according to Nicky Shiels of MKS Pamp SA.

Supply and Demand Dynamics

Besides investment demand, platinum is used in catalytic converters and laboratory equipment. The World Platinum Investment Council estimates that this year's supply deficit will approach one million ounces, further eroding dwindling above-ground stocks. This increasing demand from the automotive industry is driven by stricter emissions regulations globally.