By Yusuf Khan
The platinum market is likely to see a deficit of more than half a million ounces in 2023 amid strong automotive demand and constrained supply from South Africa for the precious metal, a new report shows.
Platinum, which has been in surplus for more than two years, is now likely to see a deficit of 556,000 ounces with demand set to rise by 24%, but supply likely to increase by just 3% this year, the World Platinum Investment Council said in the report Wednesday.
Total supply is expected to stand at 7.43 million ounces while demand is likely to hit 7.98 million ounces, WPIC said. Last year, the market had been in a surplus of more than 776,000 ounces, which reflects a 1.3 million ounce shift in terms of market fundamentals.
The shift has been driven by supply constraints, according to WPIC, notably in South Africa where power issues have severely hurt refining activities in the country. In the fourth quarter of 2022 alone, total supply was down 18% on year to 1.74 million ounces.
"Although power supply risks and operational challenges have been factored into the mining supply forecast for 2023, a worsening of electricity supply shortages in major producer South Africa and a gradual erosion of operational stability in Russia, linked to ongoing sanctions, present downside risks to supply," the council said in the report. In 2022, mine supply dropped by 11% on year to 5.55 million ounces.
Recycled supply from North America has declined as fewer consumers are purchasing new cars due to macroeconomic weakness, with 349,000 fewer ounces being supplied to the market in 2022, WPIC said. This is likely to continue in 2023 with recycled supply only set to grow by 173,000 ounces on year - reflecting a 176,000 ounce loss to the market compared with 2021 levels.
Demand, however, is expected to surge in 2023, mainly from the automotive sector looking to substitute palladium for platinum as both are used in catalytic converters to help combat greenhouse emissions. The investment body expects auto demand alone to rise 12% on year to 2.96 million ounces.
An increase in platinum loadings meanwhile has been driven by a higher uptake of hybrid vehicles which typically require them in aftertreatment systems, as well as tighter emission standards in China for heavy-duty vehicles.
Demand from industrial sectors such as glass and medical use is also set to be firm at 2.51 million ounces, partially offsetting weakness in jewelry demand with buying in China--forecast at 1.94 million ounces in 2023-- still weak, WPIC said.
Platinum prices have lowered since the start of January, on Tuesday they sat at $971 a troy ounce--down from $1,104.30 an ounce on Jan. 10--in line with moves from other dollar-backed commodities such as gold.
Given the shift in market fundamentals, more above-ground stocks will have to be drawn upon to meet demand, Edward Sterck, director of research at WPIC, said in a call.
Within the last two years, much of the above-ground stock has moved to China from Western nations, and with mine supply tightening, more imports to China could be expected, he said.
On the investment side, more exchange-traded funds are looking to hold platinum as well as increased holdings of bars and coins, with total investment demand forecast at 298,000 ounces. Last year, investment demand saw 643,000 ounces of outflows.
Consumers in Japan who have traditionally held physical platinum as bars and coins are now buyers again having sold off last year as the dollar strengthened and the yen weakened making platinum a less attractive investment, Mr. Sterck said. Consumers had normalized to the weaker yen and so global bar and coin demand is expected to rise to 450,000 ounces from 225,000 ounces, he said.
Additionally, more investors are looking to purchase physical holdings of the metal over platinum equities given the macroeconomic challenges equity markets are currently facing, Mr. Sterck said.
Write to Yusuf Khan at yusuf.khan@wsj.com
(END) Dow Jones Newswires
03-08-23 0314ET
