Source: Kitco News
By: Neils Christensen
Date: Sept 05, 2022
In a similar story throughout the precious metals sector, platinum has struggled to attract investor attention.
However, the precious metal has managed to hold critical long-term support at around $800 an ounce. The support comes as the World Platinum Investment Council highlighted a growing dichotomy in the platinum market as the precious metal.
According to the WPIC quarterly platinum outlook report, the precious metal saw a surplus 349,000 ounces in the second quarter. For the year, the report said that the total surplus is expected to increase to 974,000 ounces, up from the previous estimate of 627,000 ounces.
The council noted that outflows in platinum-backed exchange-traded funds have weighed on prices; however, despite the growing surplus, there is still a tightness in the market.
“Significantly, the sustained high platinum lease rates we have been seeing throughout 2022 – the highest in ten years and higher even than those seen during the peak of the pandemic when moving materials was extremely challenging – are a clear indication of shortages of physical metal in the market,” said Paul Wilson, CEO of the World Platinum Investment Council in a statement. “Furthermore, this already tight market is underpinned by constrained mine and recycle supply, as shown in our published data.”
“Ultimately, because of unknown factors, the surplus presented is a little bit misleading,” said Trevor Raymond, head of research at the WPIC, in an interview with Kitco News. “What we are trying to say is that platinum remains under-owned and undervalued by investors who are only looking supply and demand factors.”
Investment demand is having the most significant impact on platinum demand as the market saw substantial outflows during the second quarter. The report noted that ETF outflows are outpacing an 8% drop in supply.
“Recessionary fears, rising interest rates and weaker commodity prices were visible this quarter – mirroring the net sales trends seen in gold and silver ETFs,” the analysts said in the report.
The WPIC said 89,000 ounces of platinum flowed out of ETF markets between April and June.
“Following this trend, ETF holdings are expected to continue to fall in 2022, declining by a total of 550 koz,” the analysts said.
The WPIC said that bar and coin demand is mixed, with North American purchases rising to a new post COVID high of 292,000 ounces. However. In Japan, a weak yen has prompted some investors to sell their physical metal. For the year, analysts see total bar and coin demand falling by 47,000 ounces, a drop of 14% compared to 2021.
Outside of investment demand, the WPIC said that platinum demand in industrial uses remains solid. The report noted that automotive demand for platinum increased 8% by 50,000 ounces in the second quarter.
“Although the semiconductor shortage is ongoing, it is easing and the year-on-year increase reflects higher vehicle production volumes, higher platinum loadings on heavy-duty vehicle aftertreatment systems, particularly in China, and increased use of platinum in place of palladium in light-duty gasoline vehicles,” the analysts said.
Raymond pointed out that even faced with a global recession, platinum demand within the automotive sector is above 2018, 2019 levels.
Platinum remains a critical metal in the automotive catalytic converters, which are used to remove harmful emissions from gasoline and diesel-powered engines. Automotive demand represents a substantial majority of the platinum market.
The WPIC said that they expect automotive demand for platinum to increase 14% this year to more than 3 million ounces.
However, total industrial demand is expected to fall 15% to 2.132 million ounces. At the same time, Raymond noted that industrial demand continues to outpace global economic growth.
“Although down from the record levels of demand seen in 2021, this is up slightly from Q1 expectations, with 2022 close to being the second strongest demand year in our series, supported by a small, but growing, demand from the production and use of green hydrogen in electrolysers and fuel cells respectively, amongst other factors,” the analysts said.
Although platinum is expected to see a significant surplus this year, the WPIC said that Chinese demand remains a major wildcard and is an important reason for tightness in the market.
The WPIC noted that information regarding Chinese platinum imports is limited. However, they estimate that 1.3 million ounces have flowed into China in the first half of this year. However, this estimate is not included in the official supply and demand forecast.
“The scale of the excess imports into China, over and above-identified demand, raises a question as to why the platinum price has not responded positively to the significant level of demand into China and the tight market conditions revealed by significantly elevated platinum lease rates. We believe the answer to be that the material levels of negative ETF demand and exchange stock outflows have been sufficient to meet China’s import demands and prevent price appreciation,” the analysts said.
Raymond noted that the WPIC was able to verify demand from China, the current surplus would transform into a deficit.
“We know that imports into China is significantly outstripping demand, but we don’t know how that metal is being used. A lot of information is confidential and proprietary that we don’t have access to,” he said. “This 1.3 million is extremely relevant to the demand outlook.
Although platinum prices have struggled through most of 2022, the WPIC said that solid demand is expected to provide some support for the precious metal.