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Platinum prices slide despite supply deficit forecasts

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2023-11-24

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Despite repeated forecasts of a growing supply deficit, platinum prices have slid more than 14% up to last week from January 1.

The expected deficits have just not translated into price strength this year. Comex platinum futures are down 15% year to date as the January front month contract settled at $US923.50 an ounce on Wednesday before the Thanksgiving break.

That has put prices on track for the worst performance in five years. Unlike gold, which is up 14% year to date, thanks to strong buying by central banks that has offset weak demand and selling by gold-backed ETFs.

Platinum has not had the support of consistent central bank demand, which shouldn’t have been necessary with the supply deficit this year.

This weakness, along with that of others in the PGE group such as palladium, has undermined the share prices of prospectors like Chalice Mining and its huge Gonneville discovery in WA with its rich nickel (which hit three-year lows this week), copper, and PGE values.

And despite what seems to be good news from the latest quarterly update from the World Platinum Investment Council (WPIC), prices for the metal have refused to push higher.

The latest quarterly report has again lifted the 2023 deficit forecast for platinum and predicted another (but smaller) shortfall for 2024.

The report sees the global platinum market in a deficit position of 1.071 million ounces for this year, thanks to total year-on-year demand growth of 26% to 8.150 million ounces and weak supply.

That’s because both mining and recycling supply are expected to be well below pre-COVID levels this year and next.

While both mined and recycled supply are "constrained and running below long-run output levels, demand remains very strong (so why are prices off so much so far in 2023?)

Supply is seen down by 3% year-over-year to 7.079 million ounces, according to the WPIC report.

2023 will see the highest industrial demand on record, up a forecast 14% to 2.652 million ounces.

The report projects 2024 to be the third-highest while investment demand is forecast to remain positive in 2024, and net divestment in 2021 and 2022.

This year’s deficit and 2024’s will be driven by continuing automotive and industrial demand and constrained supply.

Automotive demand continues to strengthen, up an estimated 14% for 2023, slowing though to just a 2% increase next year.

"Significant capacity expansions in the glass sector and the chemical sector" fed growth in industrial demand, offsetting lower demand from the electrical and petroleum markets, WPIC said.

The overall expected supply deficit will 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.

The smaller deficit forecast (if it happens) will be due to a forecast 11% year-over-year fall in industrial demand, as well as lower investment demand.

But supply will be influenced by events in southern Africa.

"Whilst platinum supply is expected to increase, downside risks remain elevated as electricity shortages in South Africa are ongoing, miners are increasingly discussing the need to restructure unprofitable production following the significant decline in the PGM basket price and recycling is constrained because of the reduced availability of end-of-life vehicles,” The WPIC said.

The report points out that car companies have built up inventories of the metal (used in catalytic converters) in 2021 and 2022 under take-or-pay offtake agreements with producers.

But vehicle production failed to keep up with the rising inventories of the metal as a result of COVID and the semiconductor shortage. That saw car companies forced to retain unused stocks of the metal.

Now they have trimmed purchasing (though the report says it is still very solid) and the WPIC reckons that 2024 should see an upturn in purchases by carmakers.

Chinese demand for the metal is "highly price-sensitive,” (as it is with oil, copper, soybeans, and a host of other key commodities) with purchasing volumes picking up at or below $US900 an ounce and falling away at prices above $1,000, the report said.

Added to that, the pandemic and associated global semiconductor shortage had resulted in over 30 million fewer vehicles produced between 2020 and 2022.

The WPIC is confident the transition to renewables will also boost demand for platinum, especially from green hydrogen.

"Investing 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, while looking to gain from platinum's key role in the hydrogen-enhanced energy transition," WPIC said in its report.

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