Why the global platinum is headed for a second straight yearly deficit

By Myra P. Saefong

Lower price environment for the metal will weigh on supply, says the World Platinum Investment Council

Global platinum supply will fall short of demand for a second straight year, with the World Platinum Investment Council forecasting a near-record deficit for 2024 because of weak growth in supplies and a climb in first quarter automotive demand to the highest in seven years.

The global platinum market is expected to post a deficit of 476,000 ounces this year, after posting a deficit of 851,000 ounces for 2023, according to a quarterly report from the World Platinum Investment Council (WPIC) released Monday.

It estimates a total year-on-year demand decline of 5% to 7.587 million ounces, while supply is expected to fall 1% year-over-year to 7.111 million ounces.

The report, however, also pointed out that automotive demand for platinum was at its highest since 2017 in the first quarter, benefitting in part from ongoing substitution of platinum for palladium in automotive parts and higher light- and heavy-duty vehicle production volumes. WPIC estimates first quarter automotive demand at 832,000 ounces, compared with 816,000 ounces in the fourth quarter.

Growth in automotive demand has come "despite a forecast rise in battery electric vehicles (BEV) and reduction in internal combustion engine vehicle production," said Trevor Raymond, chief executive officer of the World Platinum Investment Council, in a press release.

Platinum group metals such as platinum are used in catalytic converters for vehicles with combustion engines, but WPIC says that no platinum group metals are used in the batteries to power BEV models that are solely battery powered.

"Platinum demand is bolstered by stricter emissions legislation, increased hybrid vehicles that contain an internal combustion engine, and growth in the substitution of platinum for palladium," said Raymond.

At the same time, "continuing challenges present downside risks to supply into next year," he said. "Miners look to reassess production plans and restructure operations to manage the negative impact of the significant decrease in the [platinum group metals] basket price on mining profitability."

The effects of "supply rationalisation plans will have both a short-term downside effect, as well as severely constrain any near-term supply response to demand growth or higher platinum prices," said Raymond.

High inflation, interest rates remaining higher for longer, and political uncertainty will weigh on commodity markets and platinum prices, WPIC said in its report. The "lower price environment, along with other factors, will continue to weigh on platinum supply during this year."

On Comex, platinum for July delivery settled at $1,007.20 an ounce, the highest most-active contract finish since Dec. 29, according to Dow Jones Market Data. Prices gained 4.3% for the week and have climbed by 6.2% month to date, but edged down by 0.2% for the year so far.

Global platinum investment, meanwhile, is expected to remain positive for a second straight year, WPIC said.

In North America, platinum bar and coin demand remains above pre-pandemic levels, and is expected to continue to do so for the full year, the report said. China's retail investment in platinum is forecast to "exhibit double digit growth...driven by perceptions of the metal being undervalued relative to gold."

Looking ahead, Raymond said the market is now seeing signs that platinum's role in the hydrogen economy is gaining momentum. WPIC's 2024 forecast indicates a "significant increase in demand to meaningful levels."

This year will also witness the allocation and deployment of over $300 billion in tax incentives and subsidies from various governments around the world - "potentially further accelerating hydrogen's demand for platinum," he said.

"Gradually, this trend is capturing global investor interest, offering investors a way to engage with assets associated with global decarbonization," said Raymond.

-Myra P. Saefong

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05-13-24 0101ET

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