Investor demand to create deficit in platinum market in 2019 – WPIC
(Kitco News) - Unprecedented investment demand has helped to transform the platinum market, shifting what was expected to be a surplus market into a small deficit, according to the latest data from the World Platinum Investment Council (WPIC).
In its Platinum Quarterly report for the third quarter, the WPIC updated its supply and demand forecast for the year and released its initial estimates for 2020. Because of strong demand for exchange-traded products the platinum’s expected surplus of 345,000 ounces is projected to fall into a 30,000 ounce deficit.
“The substantial 12% increase in total demand is driven by record ETF buying, which more than offsets expected demand decreases in the automotive (-5%), jewelry (-6%) and industrial (-1%) segments and total supply growth of 2% for full-year 2019,” the WPIC said in a press release.
According to the report, funds investment demand has driven platinum-backed ETF holding to one million ounces so far this year; “the highest seen since physically backed platinum ETFs were launched in 2007,” the report said.
“This ETF buying by large institutional investors, who typically take 2 to 3 year views and positions, reflect the value opportunity they see; driven by future demand growth potential and constrained supply," the WPIC said.
Looking ahead, the council said that they are forecasting a surplus of 670,000 ounces next year, reflecting a 1% increase in supply and a 10% decrease in demand.
However, Trevor Raymond, director of research with the council, said that the estimates are fairly conservative and it wouldn’t take much to push the market back into neutral territory. Raymond added that he expects investor demand to remain strong.
“You only need two or three funds to increase their platinum holding to see a repeat of this year,” he said. “The fact that investment demand has turned the market around so quickly should not be ignored.”
Along with investment demand, Raymond said that their estimates also don’t include substitute projections and rising diesel vehicle demand.
With palladium expected to see its ninth consecutive year of supply deficits, Raymond said that substitution remains an important topic within the PGM market. He added that he suspects that auto companies are already using cheaper platinum instead of palladium.
“I think we will start to see signs of substitution within the next 12 to 18 months,” he said.
Raymond added that a bottoming in the European diesel auto market would also be a positive sign for platinum.
“Every 4% increase in market share in the European auto market equals roughly 100,000 ounces of platinum,” he said. “Auto companies substituting 4% of the palladium for platinum would equal about 400,000 ounces. If a few factors come together next year the market can easily become balanced again.”
As for platinum jewelry demand, which has declined 6% so far this year, Raymond said that stable higher prices could ignite renewed interest, especially in China and India, as those markets continue to deal with near-record high gold prices.