Platinum market to see 769K surplus in 2021 but market remains well supported - WPIC
(Kitco News) - It has been a wild year and quarter for the physical platinum market and supply and demand uncertainty will remain the focus for 2022, according to the World Platinum Investment Council.
Wednesday, the WPIC released its latest quarter supply and demand report for the third quarter. Due to higher processing of stockpiles through the quarter, the report said that platinum supply is expected to rise to a surplus of 769,000 ounces. Next year the platinum market is expected to see an excess of around 637,000 ounces.
"It has been a dramatic quarter for platinum to say the least. We started the year off expecting to see a small supply deficit, and now we are seeing a massive surplus," said Trevor Raymond, director of research at the WPIC.
The supply surplus comes as Anglo-America Platinum has increased production of its platinum stockpile, which was built up through 2020 after its converter plant exploded early last year. The report said that in total platinum supply has increased 7% in the third quarter compared to the same quarter last year.
Although platinum is seeing new surpluses, Raymond said that it wouldn't take a significant increase in demand to bring the market back into balance and or even into a deficit. He added that there are some indications that the surplus has been reduced as the WPIC has seen significant inflows into China.
Raymond explained that while they have seen platinum going to China, information on how that metal is being used has been limited because of pandemic-related issues.
Raymond said that analysts speculate that China is importing a lot more platinum to increase the amount of metal used in automotive catalytic converters. Platinum is a critical component in catalytic converters used to reduce harmful emissions from gasoline-powered engines.
"Instead of using futures markets, we are still seeing companies in the physical market, using it as a source of supply, which is really unusual, so we think there is a disconnect between some of the supply and demand numbers right now," Raymond said.
Raymond added that despite the surplus, platinum remains well supported. Increased loading in the automotive sector has offset production disruptions due to a microchip shortage, he said.
The report expects that automotive demand in North America will increase by 92,000 ounces, a 31% increase.
While automotive demand has been an essential pillar of strength, investment demand has been a mixed bag for platinum. The WPIC expects global platinum backed Exchange-Traded-Funds to see outflows of 40,000 ounces this year. ETFs are expected to contract by 50,000 ounces in 2022.
However, Raymond explained that those outflows have been offset by strong demand for physical bars. The report said that demand for platinum bullion increased by 24,000 ounces in the third quarter, a 25% jump compared to last year.
"Bar and coin investment is expected to reach a robust 365 koz in 2021, albeit at a 38% decline on 2020's extremely high level. Demand in 2022 is expected to rise by 10% to 402 koz, driven predominantly by increased retail investor buying in North America and Japan. While this forecast of 402 koz is below the record of 586 koz in 2020, it is still over 50% higher than the annual average bar and coin demand for the seven years prior to the pandemic," the report said.
Raymond added that robust bar and coin demand strongly indicate that investors use platinum to hedge against rising market risks and inflation threats.
"Investment demand continues to normalize after two record years and the process is going to be messy," he said.
Raymond also noted that one of the biggest unknowns for the platinum market remains the evolution of the hydrogen economy. With so much focus on climate change, Raymond said that nations won't meet their targets without investing in hydrogen technology and that means more demand for platinum.
"You just aren't going to be able to generate enough electricity with solar and wind power. But you can use that to generate hydrogen," he said. "Any increase in automotive demand, investor demand or a stronger focus on hydrogen technology and you will see platinum's surplus decline very quickly."