Platinum Enters Its Second Year Of "Substantial" Deficit

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by Tyler Durden
Friday, May 17, 2024 - 05:00 PM


Platinum is entering its second year of substantial deficit, according to the Platinum Quarterly report from the World Platinum Investment Council (WPIC).

Report authors labeled the Q1 deficit of 369k oz “significant” and predicted that the deficit will continue to deepen throughout the rest of the year, hitting 476k oz in total.

“High inflation, interest rates remaining higher for longer, and political uncertainty will weigh on commodity markets and platinum prices,” WPIC researchers said.

“The lower price environment, along with other factors, will continue to weigh on platinum supply during this year.”

Reduction in supply growth is coupled with “resilient” though slightly reduced year-over-year total demand in Q1. Together, these factors have combined to carry platinum prices above $1,000 per ounce this week, passing the four-digit mark for the first time since December of 2023.

South Africa is the top producer of platinum worldwide, supplying 140,000 kg to the global market in 2022 alone. Paul Dunne, Northam CEO, recently told Reuters that South African miners are facing “the worst crisis I have seen in three decades, on a relative basis,” adding that “the squeeze on the industry is severe” as mining companies have slashed thousands of jobs in response to declining profits. The resulting production drops have contributed significantly to the overall 2024 platinum deficit.

Russia, a distant follower at 20,000 kg produced in 2022, has managed to hold production steady year-over-year, despite facing joint economic sanctions from the U.S. and the U.K. Both countries announced in April that the London Metal Exchange and the Chicago Mercantile Exchange would no longer trade new aluminum, copper, or nickel produced by Russia. Platinum group metals, including palladium, were specifically excluded from the sanctions due to supply chain sensitivities.

WPIC researchers warn that supply risks will remain a challenge throughout the coming year, resulting in a 58k oz increase in the 2024 predicted deficit since the previous report was released in March.

Meanwhile, amid supply growth reductions, WPIC’s predicted investment demand has been revised upward by nearly double. The change is largely attributed to a rise in Chinese bar and coin demand.

As of 2022, China was the world’s largest platinum consumer, holding 34% of global consumption at 75 metric tons during the year. Among other uses, the precious metal plays a key role in catalytic converters and clean hydrogen production. Increasingly strict green energy regulations in China may partly explain the country’s rising demand for component metals.

Surprisingly, all this change may be good news for farseeing investors.

“The main current challenge for platinum investment is … not the underlying fundamentals, which look the strongest they have for years, but rather one of sentiment,” WPIC researchers concluded, suggesting three reasons why fundamentals and sentiment remain at odds.

Firstly, consumers may worry that increasing vehicle electrification will reduce the use of platinum and associated metals in combustion engines (ICE). WPIC researchers have found, however, that this result is likely to be “negligible through 2030,” as growth in the EV market is not necessarily driven by “cannibalization” of ICE and hybrid vehicles.

Secondly, dipping platinum prices have caused producers to implement aggressive cost-saving measures to offset profit reduction. The scale of these adjustments may reduce the participating firms’ ability to respond to the possibility of increased demand or higher prices, slowing market recovery.

Finally, potential platinum investors have been distracted by the comparatively extraordinary performance of gold, which WPIC researchers say is doing unexpectedly well amid a high-interest rate environment. Gold prices are setting records this year, with spot prices remaining comfortably above $2,000 per ounce throughout most of the last six months.

“Overall for platinum, however, the market’s lack of conviction will in time be addressed by higher-for-longer automotive demand and ongoing supply challenges,” WPIC researchers said.

“…Platinum’s investment case continues to be compelling despite economic headwinds.”