Platinum forecast to swing to surplus in 2021 as SA mine de-stocking surprises on upside

Paul Wilson, CEO, World Platinum Investment Council

DESTOCKING of platinum group metal (PGM) inventories by South African mining firms sent the platinum market into surplus of 161,000 ounces in the second quarter, said the World Investment Platinum Council (WPIC).

Global mine supply increased 65% in the second quarter compared to the same period in 2020 when Covid-19 related restrictions heavily impacted primary production, especially in South Africa which accounts for most of primary PGM supply.

The WPIC said in its quarterly update today that some 300,000 oz of an estimated 500,000 oz in built up semi-finished stock is expected to be processed this year, not 200,000 oz as previously estimated.  This means “… that supply for the year rises 17% – an increase of 1.13 million oz – which was enough to send the platinum market into a 190,000 oz surplus for the year, it said.

The WPIC said in its first quarter update that it expected the platinum market to be in a 158,000 oz deficit this year for the third year running.

Despite the surplus, platinum demand was robust, the council said.

Demand increased 23% or about 352,000 oz, to 1.9 million oz and was forecast to total 7.75 million oz for the year, an increase of about 1% over 2020.

The semi-conductor shortage that had hindered automotive manufacture was thought to have removed about 50,000 oz from demand. Nonetheless, there was a sharp year on year rebound in automotive demand of 75% or 285,000 oz, the WPIC said.

Investment demand slides

Demand for platinum-backed exchange traded funds (ETFs), and platinum bar and coin was 191,000 oz in the quarter representing a 50% year on year decline.

ETF demand improvement in North America and Europe was offset by liquidations in South Africa where investors rotated into high yielding mining shares.

For the year, investment demand is forecast at 521,000 oz, a 66% year on year decline yet still have the pre-Covid-19 average from 2013 of 495,000 oz a year.

Paul Wilson, CEO of the WPIC, said the revision of the council’s forecast for 2021 of a platinum surplus was moved by short-term factors and did not reflect on the longer term prospects for the metal over which it remained bullish.

“Demand growth appears likely due to higher loadings and rising production of heavy-duty vehicles, increasing platinum substitution for palladium, industrial demand growth and growing investor interest in the burgeoning hydrogen economy,” said Wilson.

The platinum price has fallen 20% since its peak earlier this year of $1,257/oz.