Growing platinum demand to drive market as supply flat lines for the next three years - WPIC

March 10, 2021

New York (Mar 10)  The platinum market saw its biggest annual deficit on record in 2020. While production in South Africa is coming back online, risks are tilted to further deficits this year if demand picks up more than expected, according to the latest research from the World Platinum Investment Council (WPIC).

Wednesday, the WPIC said the platinum market saw a deficit of 932,000 ounces last year as supply constraints overwhelmed demand. Although the market saw its biggest deficit on record, it was still below the WPIC forecast for a shortfall of 1.2 million ounces.

The WPIC quarterly platinum market report noted that demand for the precious industrial metal took a significant hit last year, totaling 7.738 million ounces, down 7% from 2019. The decline resulted from the massive economic devastation caused by the COVID-19 pandemic, the report said.

While demand was weak, supply was extremely limited through 2020. The WPIC noted that the year started with Anglo American Platinum's converter plant going offline, reducing annual supply by 500,000 ounces. Through the rest of the year, the government shutdown and lower production due to the COVID-19 pandemic reduced supplies further. In total, platinum mine supply dropped by 20% last year.

Trevor Raymond, head of research at the WPIC, said in a telephone interview with Kitco News that although platinum supply has improved. Investors will want to pay more attention to the demand side. He added that the fourth quarter showed a recovery in demand as vaccine rollouts started to impact expectations for a faster-than-expected global economic recovery.

With expectations that economies will start to reopen in the second half of the year, WPIC said that they had seen further growth in demand with industrial uses increasing along with investor interest. For 2021 the council expects the platinum market to be reasonably balanced with a deficit of around 60,000 ounces.

In the current environment, with supply still constrained, Raymond said that any increase in demand would create an even deeper deficit. Raymond added that they expect supply growth to be relatively flat for the next three to four years, creating further imbalances in the supply/demand outlook.

"There's been a decade of weak prices and underinvestment in South Africa, mining capital expenditure," he said. "In the last two years, there hasn't been a single project that would materially increase the output of platinum in the next three years."

With limited supply growth, Raymond said that demand would the dominant force driving the market. Although platinum is primarily an industrial metal used mostly in the automotive sector as a critical component in catalytic converters, investor demand was the dominant theme in 2020. WPIC said it would continue to play a vital role in future prices.

WPIC said that the platinum market saw unprecedented investor demand of 1.549 million ounces, up 24% from 2019.

"Investors continue to be very interested in platinum: its key roles in the hydrogen economy, to produce green hydrogen and its use in fuel cell electric vehicles, the accepted views of significant near-term substitution of platinum for palladium, and the substantial discount to both gold and palladium suggest strong future fundamentals," the report said.

For 2021 the WPIC expects investment demand to grow by another 756 ounces. Raymond noted that although investment demand is expected to be down from 2020's historic levels, growth is above the five-year average.

Raymond added that it wouldn't take much to push investment demand higher, especially as governments worldwide look to implement new green economic initiatives.

"Platinum, even though it's gone up as much as it has, it looks really, really undervalued. There's a lot more value in the market," he said.

The WPIC also expects that improving economic conditions this year will also boost vehicle demand. The council expects automotive demand to increase to 2.999 million ounces, up 25% from 2020.

"Having endured the dark days of the pandemic and global economic slowdown, we are now considering the possibility of the world returning to normal. The positive momentum in the economic recovery of the latter part of 2020 is exhibited in the fact that activity has restarted, and platinum demand has rebounded in the automotive, industrial, and jewelry sectors," said Paul Wilson, CEO of the WPIC, in a statement.

The last factor that is expected to be an essential driver for platinum demand is the newly emerging green hydrogen technology, which is being developed as part of the green energy revolution. Platinum is a critical component that is used to separate hydrogen and oxygen molecules in water.

"As we re-emerge from the pandemic, we now consider the role platinum has to play in global decarbonization – one of the clearest global imperatives to emerge during the pandemic," said Wilson. "Platinum is key to the production of green hydrogen and in fuel cells for electric vehicles, and this understanding among investors is rapidly increasing. As hydrogen availability rises and its production cost falls, due to accelerated global investment in decarbonization, fuel cell vehicles are likely to require over a million more ounces of platinum per annum within ten years."


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