The platinum market is forecast to be in balance for 2019 as this year’s updated forecast now reflects a deficit of 30 koz compared to the prior estimate of a surplus of 345 koz.
This is according to the World Platinum Investment Council’s (WPIC’s) Platinum Quarterly, published on 21 November, for the third quarter of 2019, which includes a revision to the full-year 2019 forecast as well as an initial forecast for 2020.
The substantial 12% increase in total demand is driven by record ETF buying, which more than offsets expected demand decreases in the automotive (-5%), jewellery (-6%) and industrial (-1%) segments and total supply growth of 2% for full-year 2019.
“Mining supply is up 1% as some mining projects ramp up, although this is mostly due to the refining of metal built up in the processing pipeline in 2018. Significant increases in the price of palladium and rhodium helped lift platinum recycling 3% but the low platinum price for most of 2019 led to lower jewellery recycling,” the report revealed.
The initial forecast, the report said, for 2020 projects is a market surplus of 670 koz, reflecting a 1% decrease in supply and a 10% decrease in demand, predominantly due to lower investment demand that, although forecast to be well above the five year average, is not expected to include a repeat of this year’s record ETF buying. Mine supply is expected to be 2% lower than in 2018.
Paul Wilson, chief executive officer of WPIC said: “Stellar investment demand performance is the highlight of 2019. The particularly strong investment demand in the first half of 2019 continued in the third quarter (Q3) and into the fourth (Q4) with the increase in ETF holdings of 1moz the highest seen since physically backed platinum ETFs were launched in 2007.”
This ETF buying by large institutional investors, he added, who typically take two to three year views and positions, reflects the value opportunity they see; driven by future demand growth potential and constrained supply. It also reflects recognition that evidence of this, often played-down, demand growth, will now be realised in the short-term and within the investment horizon of their funds.
Meanwhile, investment demand in 2020 remains strong but is well below the record level in 2019 and despite a fall in mining supply will still result in a sizeable surplus in 2020. The expected fall in automotive demand excludes any effects of higher diesel sales as automakers scramble to avoid massive carbon dioxide fines and also excludes any platinum for palladium substitution.
“We believe the sustained palladium price premium over platinum in 2019 (that has averaged $839/oz since the start of Q4) has increased the likelihood of early substitution becoming visible. Interest in platinum investment has become more widespread.
“In 2019, we have observed a growing number of large macro funds, already using gold as an alternative to the c. $13 trillion of negative yielding debt globally, also including exposure to platinum. We are pleased to have partnered with the CME Group who now provide WPIC insights to their global audiences.”
The report indicated that platinum supply and demand in Q3’19 was near balance with total supply down 8% and total demand up 7%. The typical seasonal large surplus expected in the third quarter of each year fell to a small surplus of 25 koz in Q3’19.
This was due to the year-on-year fall in mining supply of 11%, that more than offset the 2% rise in recycle supply, and a 7% rise in total demand. The supply fall was primarily due to smelter maintenance in South Africa and demand was up due to continued strong investment demand in the quarter.
“In China, initiatives launched through the WPIC Shanghai office continue to increase significantly the awareness and ownership of platinum as an investment asset.
WPIC collaboration and partnerships with large and prestigious Chinese organisations such as Bank of China, Agricultural Bank of China and China Gold Association is raising public and institutional awareness of how to invest in platinum despite some infrastructure challenges,” Wilson explained.
He added that there are now four of our partners producing and selling platinum bars in China; enhancing retail availability and choice. “We have a strong pipeline of new partners and products that will assist in enhanced awareness and distribution of platinum in China in 2020 and beyond.”