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Solid demand pushes Platinum market to 1.1 million ounce deficit in 2023; shortfall continues in 2024

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(Kitco News) - Platinum could start attracting serious investor attention as record industrial demand pushes the market into a significant deficit this year and extends through 2024, according to the latest research from the World Platinum Investment Council (WPIC).

Tuesday, in its third-quarter trends report, analysts at the council said that the platinum market is on track to see a 1.071-million-ounce deficit this year, driven by growing demand and shrinking supply.

"The forecast deficit for 2023 has increased by 66 koz to 1,071 koz since the Q2'23 Platinum Quarterly in September 2023, and reflects a 3% decline in total supply and a 26% increase in demand versus 2022," the analysts wrote in the report.

In an interview with Kitco News, Edward Sterck, head of research at the WPIC, said like a broad range of commodities, platinum is also benefiting from the global green energy transition as fiberglass applications drive industrial demand.

Sterck noted that the wind power sector uses platinum-based glass fibers to make rotor blades lightweight and more efficient.

"We are seeing more and more uses for glass fibers that will continue to drive industrial demand. The green energy transition is expected to provide long-term support for platinum.

According to the report, industrial demand is projected to grow by 317,000 ounces this year to 2.652 million ounces, a 14% increase compared to 2022 and the strongest year on record.

At the same time, industrial demand is just one solid pillar within the platinum market. The WPIC said it expects automotive demand to rise to a six-year high of 3.262 million ounces, an increase of 14% compared to last year.

Although the growing electric vehicle market poses a threat to platinum, Sterk said that hybrid vehicles will limit the downside risks. He explained that hybrid vehicles have higher platinum loads because the gasoline engines that charge the batteries run at cooler temperatures.

While not providing the same support as industrial automotive demand, the WPIC projects a rise in investor interest in the precious metal. Investment demand is expected to increase to 305,000 ounces, a 36% jump from 2022.

The analysts said retail investment demand has been primarily driven by a positive turnaround in Japan after three years of net disinvestment.

The weak pillar for the platinum market remains lackluster jewelry demand, according to the trend report. Jewelry consumption is forecasted to fall by 3% from the previous year to 1.852 million ounces.

The first look at 2024 platinum demand

Not only is 2023 expected to see a record deficit for platinum, but Sterk said that preliminary estimates for 2024 point to a continued imbalance in the supply and demand outlook as weak supply growth cannot keep pace with healthy demand.

The WPIC said that the platinum market is expected to see a deficit of 353,000 ounces in 2024.

Although a potential recession in the new year could push industrial demand down by 11%, Sterk said it would still be the third-strongest year on record.

Sterk noted that while a recession is expected to have an impact on industrial demand, government fiscal programs targeting the green energy transition will drive demand for fiberglass, providing some support for platinum.

At the same time, the WPIC expects automotive demand to rise by 2%, pushing above 3.3 million ounces to its highest level since 2016.

"Tighter emissions legislation, along with a forecast increase in platinum-for-palladium substitution to around 700 koz, will drive continued growth across most regions," the analysts said.

As for investment demand, Sterk said that the potential for two consecutive years of deficits should start to attract some attention from precious metals investors. However, he added that investors are waiting for a price response to market conditions.

"Right now, investors are sitting here just waiting. They want to commit themselves, but they need to see some kind of trigger that gets them into the market, and I think that will be higher prices," he said. At this point, investors are almost prepared to miss the beginning of that move in order to have confidence in the future trajectory. The message in today's report is that with two years of market deficits, above-ground stocks have been severely depleted, and we expect the underlying fundamental backdrop should start to reflect in the price."

While platinum demand is expected to remain robust for the next two years, the WPIC said supply growth will be fairly stagnant.

The report said that the global mine supply for this year is expected to be 5.608 million ounces, roughly unchanged from last year. Mine supply is down 8% from the pre-Covid five-year average.

Looking ahead, WPIC expects platinum mine supply to grow by 191,000 ounces, a 3% increase from 2023.

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