JOHANNESBURG–Set against the earlier prediction of a “sizeable surplus” for 2020, the World Platinum Investment Council (WPIC) has revised its forecast for platinum supply in 2020 downward, with demand now expected to exceed supply by only 1.5 percent, or 119 000 oz.
Total demand for this year is expected to be just shy of eight-million ounces, with total supply anticipated to be about 8.1-million ounces.
In its platinum quarterly for the fourth quarter of 2019, published on Wednesday, the WPIC indicated that demand reflects automotive demand growth, from more platinum per heavy-duty vehicle in China and per diesel hybrid passenger vehicle in Europe, and particularly strong demand growth in glass manufacturing.
Platinum supply and demand were similar in 2019 and resulting in a balanced platinum market for a second consecutive year. However, platinum supply in 2019 only saw a surplus of 65 000 oz in contrast to the surplus of 790 000 oz in 2018.
Total supply in 2019 was up one percent from eight-million ounces to 8.1-million ounces with mining supply flat and recycling supply up five percent. Total demand in 2019 increased by 11 percent year-on-year, from 7.2-million ounces in 2018 to just over eight-million ounces, with the significant increase in investment demand more than offsetting lower automotive, jewellery and industrial demand.
Global jewellery demand, meanwhile, contracted by seven percent to just under 2.1-million ounces in 2019, with the majority of the contraction in China.
As fears about the spread of Covid-19, or coronavirus, continue to weigh on global markets, the WPIC on Wednesday said “there is the potential for the impact of the virus to reduce platinum demand if it is not contained within months”, adding that platinum jewellery demand, in particular in China, had already decreased owing to reduced store traffic.
Going into this year, the WPIC’s forecast predicts a total investment demand of 633 000 oz, with exchange-traded fund (ETF) holdings rising by 330 000 oz. Bar and coin demand is expected to reach 303 000 oz.
In 2019, investment demand of over 1.1-million ounces was higher than in 2018, and more than offset the demand decreases in other segments.
While demand for platinum in the automotive sector fell by seven percent in 2019, and by eight percent in the fourth quarter in particular, the WPIC’s projections for this year include increased demand for platinum in diesel hybrid vehicles in Europe, and heavy-duty vehicles in China.
The forecast shows automotive demand is likely to rise modestly to just over three-million ounces this year.
According to the WPIC, the ongoing unavailability of palladium has become “more pronounced” this year, and this further increases the likelihood of platinum demand growth as it substitutes for palladium in autocatalysts.
In an interview with Mining Weekly this week, WPIC research director Trevor Raymond said that, since September 2015, the European automotive sector has seen an increase in sentiment towards battery electric vehicles (EVs), being perceived as “the solution” to the loss of sales in diesel vehicles.
However, this hasn’t turned out to be the case, and the anticipated growth in battery EV sales has been “extremely small”.
In particular, Raymond noted that diesel hybrid vehicles have almost 35 percent better carbon dioxide (CO2) emissions advantage over gasoline vehicles. The increased sales of these hybrid vehicles “is almost essential” for automakers to avoid significant CO2 fines during 2020, he said.
To reduce the very significant fines faced by automakers if their fleet CO2 level exceeds new limits being introduced in Europe this year, many automakers have increased the number of diesel hybrid models on sale with very low nitrogen oxide and CO2 emissions.
As a result, higher platinum loadings per vehicle support increased platinum demand this year.
The range of forecasts for the palladium deficit this year now vary between 900 000 oz and 1.9-million ounces, with a wider awareness that palladium supply is unable to respond to very high prices and that many Chinese automakers buy metal for near-term vehicle production in the spot market, which the WPIC said “is reflected in the palladium market price and its sustained backwardation”.
Meanwhile, industrial demand for platinum decreased by one percent, or 20 000 oz, to just under 1.9-million ounces in 2019 as the rise in platinum use in the chemical industry, primarily in China, of six percent was unable to offset declines in other segments.
Industrial demand for platinum is now forecast at under 2.3-million ounces this year.
However, key to this is the expected robust performance from the glass industry, where liquid-crystal-display glass furnace construction will be fuelled by increases in Chinese capacity, as well as the replacement of some Japanese furnaces with significantly larger ones.
Demand for fibreglass manufacture is expected to remain steady and will likely be supported by the continued growth in global capacity.
According to WPIC CEO Paul Wilson, the “heightened global prominence of addressing climate change has elevated the importance of reducing CO2 emissions from vehicles; making extremely efficient clean diesel and fuel cell electric vehicles more likely to provide short- and medium-term solutions in this regard”.
He added that the case for platinum to replace palladium in autocatalysts in the world’s two largest passenger car markets, China and North America, is compelling as an investment proposition, and said that any evidence or confirmation of substitution would attract additional investment demand.
“The sustained elevated level of global debt with negative yields maintains the increased investment attractiveness of precious metals, including platinum. The coronavirus has added considerably to global risk, lifting the gold price materially and providing an underpin for platinum. This enhances platinum’s investment case, already bolstered by material demand growth potential.” Mining Weekly