Platinum enters its second year of significant deficitaccording to Platinum Quarterly Report of the World Platinum Investment Council (WPIC).
The report's authors called the first quarter's deficit of 369,000 ounces “significant” and predicted the deficit would continue to widen through the remainder of the year, reaching a total of 476,000 ounces.
“High inflation, interest rates that remain high for longer, and political uncertainty will weigh on commodity markets and platinum prices,” the WPIC researchers said. “Declining prices, along with other factors, will continue to weigh on platinum supply over the course of this year.”
The reduction in supply growth is accompanied by “resilient” total demand, albeit slightly reduced year-over-year in the first quarter. Together, these factors combined to push platinum prices above $1,000 per ounce this week, surpassing the four-digit mark for platinum prices. first time since December 2023.
South Africa is the world's leading producer of platinumsupplying 140,000 kg to the global market in 2022 alone. Paul Dunne, CEO of Northam, recently told Reuters that South African miners were facing “the worst crisis I have seen in three decades, over a relative basis”, adding that “the pressure on the industry is severe” because mining companies cut thousands of jobs in response to falling profits. The resulting production declines contributed significantly to the overall platinum deficit for 2024.
Russia, far behind with 20,000 kg produced in 2022, has managed to keep its production stable from one year to the next, despite joint economic sanctions from the United States and the United Kingdom. The two 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 sanctions due to supply chain sensitivities.
WPIC researchers warn that supply risks will remain a challenge throughout the coming year, leading to a 58,000 ounce increase in the forecast deficit for 2024 since the previous report was released in March.
Meanwhile, amid reduced supply growth, WPIC forecast investment demand has been revised upward by almost double. This change is largely attributed to an increase in Chinese demand for bars and coins.
From 2022, China was the world's largest consumer of platinum, 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 regulations on green energy in China can partly explain the growing demand for metal components in the country.
Surprisingly, all of these changes could be good news for forward-thinking investors.
“The main challenge for platinum investing today is not the underlying fundamentals, which appear the strongest in years, but rather sentiment,” the WPIC researchers concluded, suggesting three reasons why Fundamentals and sentiment remain at odds.
First, consumers may be concerned that increasing vehicle electrification will reduce the use of platinum and related metals in internal combustion engines (ICEs). However, WPIC researchers found that this result would likely be “negligible until 2030”, as growth in the electric vehicle market is not necessarily driven by the “cannibalization” of combustion engine and hybrid vehicles.
Second, falling platinum prices have caused producers to implement aggressive cost-cutting measures to compensate for reduced profits. The magnitude of these adjustments may reduce the ability of participating companies to respond to the possibility of increased demand or higher prices, thereby slowing market recovery.
Finally, would-be platinum investors have been distracted by the relatively extraordinary performance of gold, which WPIC researchers say is doing surprisingly well in a high interest rate environment. Gold prices set records this year, with spot prices remaining comfortably above $2,000 an ounce across most of the market. the last six months.
“Overall, for platinum, lack of market conviction will, over time, be offset by higher and longer-term automotive demand and continued supply issues,” the WPIC researchers said. “…Platinum's investment case remains compelling despite economic difficulties. »
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