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WPIC sees platinum surplus falling to 627K in 2022, down from 1.2 million in 2021

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(Kitco News) - Although platinum is struggling to attract new investment demand as prices remain below $1,000 an ounce, it wouldn't take much to drive the precious industrial metal into a deficit by the end of the year, supporting higher prices, according to the latest comments from the World Platinum Investment Council (WPIC).

In an interview with Kitco News, Trevor Raymond, head of research at the WPIC, said that despite platinum's recent disappointing price action, the market is still healthy. He noted that the precious metal had a strong start to the year as prices pushed to nearly a one-year intra-day high at $1,197 an ounce.

Since its early-March high, platinum prices have given up all of their gains for the year. July Platinum futures last traded at $944.50 an ounce.

However, Raymond added that it wouldn't take much to shift the current supply and demand fundamentals to support higher prices through the end of the year.

"Demand remains fairly robust, but the supply looks fragile. We expect that only a small number of changes in supply and demand could have a major impact on the market," he said.

Monday, the WPIC published its first-quarter report and revised its full-year outlook. During the first three months of the year, demand fell 26% compared to the first quarter of 2021; at the same time, supply 13% fell year-on-year leaving the market in a surplus of 167,000 ounces.

However, looking at the full year, dwindling supply and solid demand, particularly from the auto sector, has helped reduce the surplus in the market. The authors of the report said they expect supply to fall 5% this year while demand rises 2%.

Platinum market surplus to fall by 47% in 2022 as demand continues to grow - WPIC

In total, the council sees platinum's surplus falling to 627,000 ounces, down notably from last year's surplus of 1.128 million ounces.

"Unprecedented events in Q1'22 had a huge impact on both the supply of and demand for platinum, adding a layer of complexity on top of pre-existing issues, which will continue well into 2022," the report said.

Looking at the platinum supply, Raymond noted the stockpile of ore built up in 2020 has now been worked through. He added that mine supply in South Africa is also being impacted by resurging COVID-19 infections.

Russia's ongoing war in Ukraine could also impact the platinum supply. Recently the U.K. government increased its tariffs on platinum and palladium imported from Russia as part of its sanctions.

Russia represents about 11% of the total global supply. "In this environment, a potential 11% drop in supply could significantly impact platinum," said Raymond.

Looking at platinum demand, the report said that automotive demand for platinum, a critical metal used in autocatalytic converters in gasoline and diesel-powered vehicles, was flat at 725,000 in the first quarter of 2022. However, the WPIC expects automotive demand to increase by 16% this year.

Looking at the jewelry market, the report said that overall global platinum jewelry demand declined by 9% or 42,000 compared to the first quarter of 2021 and is expected to decline by 2% for the full year.

Raymond noted that while Europe and North American markets are seeing healthy demand for platinum jewelry, the global market has been dominated by weakness in China as the nation continues to impose strict lockdowns to combat the ongoing COVID-19 pandemic.

Another major market for platinum remains investment demand, which is the most sensitive to the supply and demand outlook. The report said that bar and coin demand totaled 60,000 ounces in the first three months of the year, up from 21,000 ounces of physical demand seen in the first quarter of 2021.

"Despite particularly strong demand in North America, global demand growth was limited by U.S. dollar price strength sustained by a significant subsequent weakening in the yen, which drove local platinum prices to their highest since May last year and which encouraged profit-taking among Japanese investors. This trend is expected to continue into the next quarter, with global bar and coin demand for the full-year forecast to decline by 23%," the report said.

However, platinum-backed exchange-traded funds saw outflows during the first quarter, which could be traced to one specific fund in Europe.

As for what will bring investors back to the market, Raymond said any panic in the marketplace will impact prices.

"When you look at rising lease rates, there are signs that supply is pretty tight and all it would take is a company not able to get what they need to create some panic in the marketplace," he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.