THE platinum market is forecast to move into a yet wider supply deficit this year, according to the World Platinum Investment Council (WPIC).
Commenting in its second quarter report, the council said demand would exceed supply by an expected 1.03 million ounces in 2024. In its first quarter report, the WPIC forecast a 476,000 oz supply deficit for the year (following a 731,000 oz deficit for 2023).
Investment demand has picked up, especially strongly in exchange traded funds (ETFs) – an inflow of 444,000 oz was recorded in the second quarter – while jewellery demand was also stronger, especially in the US and Europe, in the quarter.
All-important automotive demand also increased – one percent to 820,000 oz in the quarter – and is expected to be at a seven-year high this year of 3,24 million oz (+1%).
On the supply side, second quarter refined mine production rose 4% reaching 1,54 million oz, thanks largely to a 7% increase in output from South Africa.
For the year, however, South African output will fall 2% to 3.88 million oz as expensive production is cut. Combined with lower Russian output, total mined platinum supply will fall 2% to 5,51 million oz – a four-year low.
These promising supply/demand tailwinds beg the question as to why the platinum price, and the prices of sister metals including palladium and rhodium, remain muted? There was a brief improvement in the palladium price in June, but the dollar PGM basket price of metals has remained largely flat year-on-year.
“For a long time, price setting has been influenced more by sentiment than by supply/demand fundamentals,” said Trevor Raymond, CEO of the WPIC. The blow suffered to platinum by so-called ‘Dieselgate’ from 2015 – in which VW was found by the US Environmental Protection Agency to have violated clean air legisation by installing cheat technology on its autocatalysts – set a foundation for sentiment, he said.
A pre-existing decline in light duty diesel demand in Europe and then the expected electrification of the drive-train added further impetus to this view about platinum. But the WPIC thinks sentiment will eventually turn in platinum’s favour.
“It’s dificult to put hand on heart and say now is the time we are going to see that switch,” said Ed Sterck, director of research for the council in an interview. “But the longer it goes on the more dramatic the response is likely to be.”
One indicator that could drive more fundamental supply/demand sentiment is the deterioration in above ground stocks (unallocated vaulted metal) this year. Sterck estimates stocks will be at four months’ supply by year-end, above the rule of thumb six months of supply that would normally trigger a price reaction.
Another factor that may influence the metal markets would be rate cuts by the Federal Reserve as flagged lately. “It’s the expectation that matters and so the market would need to expect a series of rate cuts,” said Sterck. Non-yielding investments such as platinum ETFs would benefit from a lower interest cycle.
