The global supply of platinum is expected to significantly fall short of demand this year, with the World Platinum Investment Council forecasting a record deficit, along with a rise in industrial demand to an all-time high.<\/p>\n
The global platinum market is expected to post a deficit of 1.071 million ounces for 2023, with total year-on-year demand growth of 26% to 8.150 million ounces, while supply is seen down by 3% year-over-year to 7.079 million ounces, according to a quarterly report the World Platinum Investment Council (WPIC) released Tuesday.<\/p>\n
\n
While both mined and recycled supply are \u201cconstrained and running below long-run output levels, this is very much a demand-led story,\u201d 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. <\/p>\n
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.<\/p>\n
\u201cSignificant capacity expansions in the glass sector and the chemical sector\u201d fed growth in industrial demand, offsetting lower demand from the electrical and petroleum markets, WPIC said.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Next year\u2019s 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.<\/p>\n
He attributed next year\u2019s smaller deficit forecast to an 11% year-over-year decline in industrial demand, as well as lower investment demand.<\/p>\n
Expectations for back-to-back annual deficits demonstrate \u201cthe resilience of the platinum market despite economic headwinds, a feature that is strongly linked to its diversity of demand,\u201d said Trevor Raymond, chief executive officer at WPIC, in a statement.<\/p>\n
Price decline<\/h2>\n
Despite expectations for overall supply shortfalls this year and next, platinum futures
\n PL00,
\n +0.52%<\/bg-quote>
\n 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. <\/p>\nPrices are on track for their largest yearly percentage drop since 2018.<\/p>\n
Sterck attributed the price decline to the \u201cglobal macroeconomic environment,\u201d 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 \u201cact as a headwind to price appreciation potential,\u201d he said.<\/p>\n
Also, automakers likely accumulated high levels of inventory through 2021 and 2022 as they continued to \u201ctake delivery of platinum group metals under their take or pay offtake agreements,\u201d but \u201cunderproduced\u201d vehicles as a result of COVID and the semiconductor shortage, said Sterck. So automakers likely sat on \u201ccollective excess inventories.\u201d<\/p>\n
Reduced automaker purchasing would have taken a \u201cbit of heat out of the market,\u201d but WPIC believes this process has \u201cmore or less run its course, which means that underlying market fundamentals are now more likely to be reflected in the platinum price,\u201d Sterck said.<\/p>\n
Economic growth and energy transition<\/h2>\n
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. <\/p>\n
As growth slows and inflation is brought under control, it expects governments to \u201cdeploy targeted stimulus packages to boost economic growth.\u201d<\/p>\n
Those would likely be focused toward energy transition efforts and platinum would be a \u201csignificant beneficiary\u201d with demand from growth in renewable energy generation and hydrogen production and use, it said.<\/p>\n
\u201cInvesting 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\u2019s key role in the hydrogen enhanced energy transition,\u201d WPIC said in its report.<\/p>\n
Even so, investors remain \u201cfrustrated\u201d that the platinum price does not reflect the sizeable market deficit of over 1 million ounces this year, it said.<\/p>\n
Chinese demand for the metal has been \u201chighly price sensitive,\u201d 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.<\/p>\n
Looking ahead, the overall economic outlook \u201cwould suggest lower demand for commodities in general, including platinum,\u201d WPIC said, but it still sees the metal as being \u201cwell protected against significant downside risks.\u201d<\/p>\n<\/p><\/div>\n
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