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WPIC: Global Platinum Surplus To Shrink To 180,000 Oz. In 2018

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(Kitco News) - The annual supply surplus in the platinum market should shrink in 2018 as demand rises but South African mine production shrinks, said the World Platinum Investment Council Monday.

The organization released its quarterly report on market supply/demand fundamentals at the start of Platinum Week in London.

The WPIC said it looks for the supply surplus to fall to 180,000 ounces this year from the revised 315,000 in 2017.

“Ultimately, we believe platinum supply remains constrained,” the report said. “Producers are contending with reducing their costs to offset increased labor costs driven up by more than inflation. Moreover, utilities and consumables, coupled with a low platinum price and the strong rand, continue to put severe pressure on margins and capital expenditure.”

In the first quarter, the market was in deficit by 125,000 ounces, the organization said. The WPIC said South African mine supply fell in the first quarter to its lowest level since 2016 at 985,000 ounces.

However, the forecast South African mine supply – some three-quarters of the world’s mine output – has been revised up to 4.36 million ounces for full-year 2018. Still, total global mine supply is seen falling to 6 million ounces from 6.15 million last year. When including recycling, total global supply is forecast to fall to 8 million ounces from 8.08 million.

Meanwhile, global demand is forecast to be marginally higher for the year, despite a fall in total  automotive demand, in particular for diesel-powered vehicles that require the metal for catalytic converters, the WPIC said. All forms of demand are seen rising to 7.8 million ounces from 7.77 million.

Use of platinum for autos is seen easing 3% to 3.3 million ounces. However, other industrial demand and jewelry-related consumption are forecast to rise.

The consumption of the metal for jewelry purposes is seen rising by 2% to 2.51 million ounces in 2018, with the WPIC saying that this will be driven global economic growth, along with continued demand from India as larger retailers with multiple stores gain market share from the independent sector. Demand from China is predicted to increase amid a campaign to target millennials.

Excluding autos, industrial demand is seen rising by 0.6% to 1.75 million ounces. The WPIC said this should be helped by the petroleum industry, with the recovery in Japan expected to lead to increased use of platinum for refining.

Investment demand was forecast to ease 4% to 250,000 ounces in 2018.

While diesel car sales are down in the European Union, heavy-duty diesel sales are strong in the rest of the world, the report said.

“U.S. heavy-duty truck orders have responded to rising freight demand in a confident economy,” said the WPIC report. “U.S. sales of Daimler trucks, for instance, are up 21%. In China, increased sales were bolstered by higher platinum loadings to meet tightening emissions legislation. Environmentally driven fleet renewal in India is now also under way.”

Additionally, the WPIC report said, U.S. automakers have made an increasing number of announcements about meeting environmental standards in order to avoid fines – all pointing toward more usage of platinum.

“Today’s report shows resilient demand for platinum, which will rise modestly this year when compared to 2017,” said Paul Wilson, chief executive officer of WPIC. “We are still convinced that supply remains constrained. The year will be in surplus overall, albeit it at lower level than 2017.”

He later added: “The opportunity for the global platinum market to grow remains undiminished. I have been personally encouraged by recent activities in China, where a number of new WPIC product partnerships, clearly focused on retail investors, are in the pipeline.”

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