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China considers platinum a critical mineral with strategic value owing to its importance in new energy technologies such as hydrogen fuel cells and electrolysers to produce hydrogen.
China, which has negligible domestic platinum group metal (PGM) resources, has thus invested in physical platinum through its new Guangzhou Futures Exchange (GFEX), which is a natural mechanism for attracting metal to supply future industrial demand.
The GFEX enhances platinum and palladium liquidity and is supportive of industrial development and growth.
World Platinum Investment Council (WPIC) regional head Asia Pacific Weibin Deng provided this important insight to Mining Weekly on the interesting significance of last week's launch on the GFEX of platinum and palladium futures and options.
"For the first time, domestic industrial users and fabricators have a direct, regulated tool to hedge against global platinum and palladium price volatility.
"Previously, many were exposed to this risk without an efficient hedging mechanism," explained Deng, who described the GFEX as being "transformative" for China's PGMs market.
"The ability to enter into platinum and palladium futures contracts enhances price stability for key industries and it is expected to narrow the spreads on platinum jewellery and investment products - meaning lower premiums for buyers and smaller discounts on buybacks.
"Ultimately, this boosts consumer confidence and supports demand growth, while also encouraging a more robust domestic recycling ecosystem," Deng noted.
This initiative directly supports China's national strategic priorities amid the GFEX mandate being to develop financial instruments that serve the real economy.
Given China's strong focus on the energy transition and decarbonisation, platinum and palladium have been prioritised to the benefit of South Africa, which hosts more PGMs than any other country.
The approval of platinum and palladium aligns with China's national agenda to secure supply chains and manage risk for what have become essential raw materials for all countries that are pursuing a cleaner and greener planet to save Mother Earth from climate catastrophe.
These are Deng's replies to a series of questions put to him:
What has prompted GFEX to make these products available now?
This initiative directly supports China's national strategic priorities. GFEX's mandate is to develop financial instruments that serve the real economy. Given the government's strong focus on the energy transition and decarbonisation, platinum and palladium have been prioritised. The approval of these products aligns with the national agenda to secure supply chains and manage risk for these essential raw materials.
What are the contracts' key features and how do they align with other markets?
GFEX offers innovative bi-monthly contracts, similar to those offered by Japan Exchange Group, with frequent opportunities for platinum and palladium risk management. A truly unique feature is the acceptance of both ingots and sponge for physical delivery. No other global exchange allows delivery of sponge, pure metal in a powder form which is most needed by industrial and automotive end-users. This ensures that contracts meet the precise needs of the real economy. Furthermore, the delivery mechanism is robust. Metal is accepted from both approved domestic refiners and international suppliers accredited by the London Platinum and Palladium Market, ensuring trustworthy and reliable physical settlement.
Will GFEX's platinum and palladium contracts promote greater integration with global commodities markets?
By making the contracts available to both institutions and individuals domestically and, in due course, internationally, GFEX creates a new, accessible benchmark using C...