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Platinum market relatively balanced as COVID-19 impacts supply and demand – World Platinum Investment Council

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(Kitco News) - The COVID-19 pandemic has sent the global economy into a tailspin, and like many other commodities, the platinum market as seen significant damage, but according to the World Platinum Investment Council (WPIC), the market could be in a lot worse shape.

In its first-quarter outlook, the WPIC said that it sees a relatively balanced platinum market for 2020 as it sees a slightly larger than expected surplus for the year as both demand and supply dropped sharply in the first three months of 2020.

The report, released early in Britain, said that total demand in the first quarter of 2020 came in at 1.649 million ounces, a decline of -94,000 ounces or 5% compared to the fourth quarter of 2019. At the same time, supply dropped 19% or 410,000 ounces to 1.773 million in the previous quarter.

"Without warning, and almost overnight, COVID-19 has presented an unparalleled situation for the platinum market, with serious and negative direct effects on demand and supply," said Paul Wilson, CEO of World Platinum Investment Council, in a press release

The WPIC said that the supply surplus in the first quarter came in at 124,000 ounces. For the year, the council has increased its supply forecast to 248,000 ounces, an increase of 128,000 ounces from the previous estimate.

In an interview with Kitco News, Trevor Raymond, director of research at the WPIC, said that even with the increased supply forecast, the market is still relatively balanced.

Although demand is expected to be weak as the coronavirus wreaks havoc on the global economy, Raymond noted that supply is also severely impacted. He added that the market hasn't even fully digested the impact of the shutdown of the Anglo American Platinum plant in late February will have on the market.

Raymond noted that the shutdown of one of South Africa's biggest platinum process facility has erased nearly 500,000 ounces of the precious metal from the marketplace.

"I don't think investors fully realize the impact that will have on the supply of platinum," he said. "If Anglo's platinum convert hadn't failed, that surplus would be 747,000 ounces. That would not be a nice place to be."

While the market remains in surplus, Raymond said that they also see growing demand trends on the horizon as investors continue to look for safe-haven assets and move down the value curve in the precious metals market.

Raymond noted that the first quarter saw unprecedented demand for platinum bars and coins. Investment demand for physical bullion saw its highest sales figures in two decades.

"The increase was largely driven by bargain-hunting following the price fall in March. Bar and coin investment demand is expected to surge by 115% to 605,000 in 2020," the WPIC said in the report.

Raymond said that the most significant factor driving platinum investment demand this year will be gold's bull market.

"Platinum remains at a sharp discount to gold and is an attractive alternative asset," he said. "A strong gold prices will continue to be good for platinum.

Although physical demand for platinum saw unparelled demand in the first quarter. Investment demand in exchange-traded saw outflows in March as the world was devastated by the COVID-19 pandemic.

“Global platinum ETF holdings reduced by 213,000  ounces during Q1. Most of the outflows occurred in March when some investors sold platinum positions in order to raise cash amid a global equity collapse. Prior to that, global holdings had recorded modest growth to new all-time highs in early March, thanks to positive spill-overs from rising gold prices,” the council said.

While there is still a lot of uncertainty surrounding the impact COVID Raymond said, he is confident that industrial demand will bounce back as the global economy starts the long road to recovery.

Raymond noted that because of low oil prices, diesel-driven trucks and vehicles once again attract attention. He added that increasing platinum loads in catalytic converters used in diesel engines will continue to drive industrial demand.

Raymond noted that even as investors deal with the coronavirus economic crisis, environmental concerns remain a top issue that are not going away.

"The importance of the diesel vehicle over the next couple of years is going to be elevated significantly," he said. "I think we are going to see platinum play a role in dealing with climate change in a cost-effective way."

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