Global platinum market on track to post largest supply deficit on record

While both mined and recycled supply are “constrained and running below long-run output levels, this is very much a demand-led story,” with 26% year-over-year demand growth, led by automotive and industrial demand both being up 14% year over year, Edward Sterck, director of research at WPIC, told MarketWatch. There has also been a swing to positive investment demand, after net-disinvestment in 2021 and 2022, he said.

The report said industrial demand for 2023 is forecast to climb by 14% year-on-year to reach 2.652 million ounces, which would represent the strongest year on record.

“Significant capacity expansions in the glass sector and the chemical sector” fed growth in industrial demand, offsetting lower demand from the electrical and petroleum markets, WPIC said.

The automotive segment of demand for the metal is also forecast to climb by 14% to a six-year high of 2.367 million ounces this year, it said, noting that stricter emissions regulations, particularly in China, have helped to lift demand for platinum. The metal is used in vehicle catalytic converters, which help reduce harmful emissions.

The overall expected supply deficit for 2023 is forecast to extend into a second straight year, with a deficit of 353,000 ounces in 2024. Total demand is forecast to fall by 6% to 7.663 million ounces next year, while supply increases by 3% to 7.31 million ounces.

Next year’s industrial demand is expected to be lower than the record demand level seen this year, but 2024 is still likely to be the third-strongest year for industrial demand on record, Sterck said.

He attributed next year’s smaller deficit forecast to an 11% year-over-year decline in industrial demand, as well as lower investment demand.

Expectations for back-to-back annual deficits demonstrate “the resilience of the platinum market despite economic headwinds, a feature that is strongly linked to its diversity of demand,” said Trevor Raymond, chief executive officer at WPIC, in a statement.

Price decline

Despite expectations for overall supply shortfalls this year and next, platinum futures
PL00,
+0.52%
on Comex have fallen by more than 14% year to date as of Monday, when the most-active January contract settled at $927.40 an ounce, according to Dow Jones Market Data.

Prices are on track for their largest yearly percentage drop since 2018.

Sterck attributed the price decline to the “global macroeconomic environment,” which has seen interest rates rise significantly as central banks make efforts to tame inflation. Within a higher interest-rate environment, investors prefer holding yielding assets rather than non-yielding precious metals that can “act as a headwind to price appreciation potential,” he said.

Also, automakers likely accumulated high levels of inventory through 2021 and 2022 as they continued to “take delivery of platinum group metals under their take or pay offtake agreements,” but “underproduced” vehicles as a result of COVID and the semiconductor shortage, said Sterck. So automakers likely sat on “collective excess inventories.”

Reduced automaker purchasing would have taken a “bit of heat out of the market,” but WPIC believes this process has “more or less run its course, which means that underlying market fundamentals are now more likely to be reflected in the platinum price,” Sterck said.

Economic growth and energy transition

In its report, WPIC said that the role government stimulus packages are likely to have around the world is central to the outlook for platinum.

As growth slows and inflation is brought under control, it expects governments to “deploy targeted stimulus packages to boost economic growth.”

Those would likely be focused toward energy transition efforts and platinum would be a “significant beneficiary” with demand from growth in renewable energy generation and hydrogen production and use, it said.

“Investing in platinum now is investing in the platinum market deficit, the result of strong demand growth protected from weak economic growth and constrained mine supply, whilst looking to gain from platinum’s key role in the hydrogen enhanced energy transition,” WPIC said in its report.

Even so, investors remain “frustrated” that the platinum price does not reflect the sizeable market deficit of over 1 million ounces this year, it said.

Chinese demand for the metal has been “highly price sensitive,” with purchasing volumes picking up at or below $900 an ounce and falling away at prices above $1,000, it said. Added to that, the pandemic and associated global semiconductor shortage had resulted in over 30 million fewer vehicles produced between 2020 and 2022.

Looking ahead, the overall economic outlook “would suggest lower demand for commodities in general, including platinum,” WPIC said, but it still sees the metal as being “well protected against significant downside risks.”