Platinum extended its steep rally to a 17-year high, driven by tight supplies and elevated trading activity in a new Chinese futures contract.

Spot prices climbed as much as 4.9% on Wednesday, and have chalked up gains of more than 2% each day since Thursday. The metal has more than doubled this year, set for the biggest annual gain in Bloomberg data going back to 1987.

The surge has come as the London market shows signs of tightening, as banks park metal in the US to insure against the risk of tariffs. Exports to China have also been robust this year, and optimism for the nation’s demand has been bolstered as futures recently began trading on the Guangzhou Futures Exchange.

Highlighting the tight supply, the annualised cost of borrowing platinum for one month was at about 14% on Wednesday in London, a historically high level that indicates traders are unwilling to part with metal while inventories are low. 

“We’ve got this really tight environment globally, with three-way geographic competition for metal between the US, Europe, and China,” said Ed Sterck, director of research at the World Platinum Investment Council. “You’ve still got really elevated lease rates, which is indicative of a shortage of metal.”

Against a tight background, the metal has been hit by a wave of investment that poured into precious metals this year, a rush that helped silver to also double in price and soar to a record.

As traders wait for the outcome of Washington’s Section 232 probe- which could lead to tariffs or trade restrictions on platinum- more than 600,000 ounces of the metal are sitting in US warehouses, an amount much higher than usual. 

In China, the newly launched platinum futures on GFEX have attracted a wave of speculators, with prices rising well above other international benchmarks. 

While Sterck said trading volumes on the new offering were significant, he noted that the contract wasn’t yet fully open for non-domestic traders to take advantage of premium prices by sending platinum to China. Smoothing out the arbitrage process would make it easier for the futures contracts to pull global benchmarks higher, as inflows cause other markets to tighten.

The exchange has shared ambitions about opening vaults overseas in the future, to take a larger role in the price discovery process, according to Sterck.

“China’s the biggest market in the world for a lot of commodities, but hasn’t necessarily been as influential in global price discovery yet,” he said. 

Platinum is on course for a third annual deficit this year, helped by supply disruptions in major producer South Africa. The auto and jewellery sectors are among the biggest consumers, but high borrowing costs have been an issue for manufacturers that use the metal to produce goods ranging from chemicals to glass to laboratory equipment. Industrial users often choose the less capital-intensive option of leasing, rather than buying the commodity outright. Given the cost of borrowing, a move to buying instead could propel prices higher.

The electric-vehicle transition had long weighed on platinum and its sister metal palladium, both of which are used in catalytic converters to filter pollution. Still, slower-than-expected adoption of EVs in some markets has boosted sentiment, and the European Union this week eased requirements that would have halted sales of new gasoline and diesel-fuelled cars starting in 2035.

Platinum was up 2.2% at $1,885.40 an ounce by 3:55 p.m. in London. Sister metal palladium gained as much as 3.1%.