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This year could kickstarts long-term deficit for platinum market - WPIC

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(Kitco News) - After two years of surpluses, the platinum market could be on the cusp of a significant shift in its fundamental supply and demand outlook, which should continue to support prices and attract new investor interest, according to the latest report from the World Platinum Investment Council.

Wednesday, the WPIC released its quarterly platinum report, which included the 2022 full-year numbers. According to the report, platinum saw a significant market surplus of 776,000 ounces last year as supply saw an annual decline of 12%; at the same-time total demand dropped 5%.

However, with most stockpiles gone and further supply constraints, the most prominent feature of the WPIC’s research is the analysts’ 2023 outlook, which calls for a market deficit of 556,000 ounces; this represents a 1.3 million-ounce swing in the platinum market.

The WPIC’s forecast of a "meaningful" deficit has not had much impact on prices as the market continues to hold support above last month’s low above $900 an ounce. April platinum futures last traded at $943 an ounce, up 0.30% on the day.

In an interview with Kitco News, Ed Sterck, director of research at the WPIC, said the deficit is driven by significant demand as supply hovers around 2022 levels.

"There are certainly a lot of driving forces behind the deficit and we could be looking at the first of several years of deficits," he said.

Looking at the official numbers, the WPIC sees global platinum demand growing by 24% this year to 7.985 million ounces, with supply increasing by only 3% to 7.428 million ounces.

The most crucial sector for the platinum market remains the automotive sector. Platinum is a critical component in catalytic converters, which are used in gasoline and diesel-powered engines to reduce harmful emissions.

PWIC analysts see automotive platinum demand growing by 311,000 ounces or 10% this year. Sterck said that although auto sales may be down this year, automakers still have to restock their inventories as production has been disrupted in the last few years from a microchip shortage due to the COVID-19 global supply crunch.

Sterck also said that the substitution trend in the marketplace as automakers switch back to cheaper platinum from palladium continues to gain momentum. He explained that ongoing substitution could increase platinum demand by at least half-million ounces.

Finally, Sterck added that rising platinum loads in catalytic converters due to increasing environmental standards means fewer vehicles can be sold and still impact the market.  

"Because of rising interest rates, there are probably some downside risks to consumer automotive demand this year, but for platinum, that is more than offset by substitution," he said.

Industry leaders to address escalating catalytic converter thefts and promote responsible PGM recycling

The biggest growth sector for platinum is the industrial sector, which is expected to see consumption growth of 262,000 ounces this year, a 12% increase from last year and missing the 2021 record by 26,000 ounces.

While industrial demand is the biggest growth sector, Sterck said it is also the most volatile, as a global recession could impact consumption.

Looking outside industrial sectors, the WPIC said that jewelry demand is expected to grow by 2% or 42,000 ounces this year, with China leading the way as the nation reopens after strict COVID-19 lockdowns.

"Declines are anticipated in Europe and North America on account of fewer weddings and
recessionary fears," the analysts said in the report.

Finally, the last pillar of support for the platinum market is investment demand, which is expected to increase by 298,000 ounces.

"Platinum bar and coin demand is forecast to jump by 100% to 450 koz in 2023, a three-year high, reflecting improved product availability in North America and Europe and net disinvestment in Japan swinging to net investment," the analysts said.

Trevor Raymond, CEO of the council, said that platinum remains an attractive safe-haven asset as global recession risks continue to rise.

"From a macro perspective, 2023 is expected to be a difficult year, with an uncertain economic environment, inflationary headwinds, and a global energy crisis. And yet, going against the grain, the platinum market is forecast to be in deficit after two consecutive years of significant surpluses," Raymond said in a statement. "This year’s forecast deficit is unlikely to be a one-off, either, with challenges to supply expected to continue and future demand growth, supported by the needs of the hydrogen economy, likely to result in deficits continuing for a number of years."

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