China imported more than 1.2 million ounces of platinum in 2022 what does this means for 2023
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(Kitco News) - Chinese platinum demand through 2022 has outstripped supply, dramatically impacting the precious metal and creating tight market conditions and higher lease rates; analysts at the World Platinum Investment Council said this trend could continue for the foreseeable future as industrial demand for platinum continues to grow.
The WPIC noted that, according to trade data, more than 1.2 million ounces of platinum has flowed into China this year. More than 2.4 million ounces have flowed into China since 2021. However, the WPIC has not used this data in their supply and demand calculation as they haven't been able to track how the metal is being used.
In interviews with Kitco News throughout the year, WPIC CEO Trevor Raymond has described the Chinese platinum market as a black hole of information.
In his latest report, Edward Sterck, director of research at the council, said that while the nation could be stockpiling platinum for future consumption, some of it is being used to meet growing demand.
"We note that the timing of purchases has been price opportunistic, which suggests that there is a quasi-speculative component to them. However, there has also been a step-change in total volumes since early 2021, indicating that there may also have been an increase in real demand," Sterck said.
The WPIC noted that Chinese platinum imports have absorbed surpluses from 2021 and 2022. Last month the WPIC said that they expect to see a platinum surplus of 804,000 ounces for this year.
"Excess imports into China have effectively resulted in a flow of platinum from Western vaults into China, leaving limited above-ground stocks in the rest of the world to meet any supply shortages such as the 303koz deficit forecast for 2023," Sterck said in the report.
The WPIC said that growing industrial demand, specifically from the auto sector, continues to grow. Platinum is a critical metal in automotive catalytic converters to reduce harmful emissions from vehicle exhaust.
The WPIC has suspected that Chinese automakers have been increasing the amount of platinum used in their catalytic converters to further reduce emissions to meet tighter government regulations.
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Although China appears to be building a massive stockpile of platinum, Sterck said that he doesn't see this as a significant threat, as prices will have to be materially higher if China were to flood the market.
"A similar situation with palladium occurred in the 2010s and the quasi-speculative inventories in China were only released after a significant increase – more than a doubling – in the price of palladium," Sterck said.
Although platinum prices fell to a more than one-year low in September, the market has been fairly stable, with prices holding support around $800 an ounce. Investment demand has picked up into year-end, with prices trading solidly above $1,000 an ounce. January platinum futures last traded at $1,034.70 an ounce, down 0.40% on the day.
The WPIC said it expects investment demand to pick up in 2023 as the market will likely fall into a significant deficit next year. They added that the precious metal remains an attractive value play.
"The platinum price remains historically undervalued and significantly below both gold and palladium," Sterck said. "The nature and size of platinum above ground stocks now locked up in China combined with the 2023 forecast deficit could materially impact price discovery."