MW Why platinum prices continue to lose luster despite a supply shortage
By Myra P. Saefong
The global platinum market saw a record deficit in 2023: WPIC
Platinum prices fell last year and are trading lower this year, threatening the profitability for miners of the metal despite a persistent supply shortage.
Against that backdrop, the fall in prices for the industrial and precious metal seems to defy logic. The metal has underperformed an overall rise in the commodities sector, even as the global platinum market marked a record deficit in 2023, poised to extend that deficit into 2024.
The world platinum market posted a deficit of 878,000 ounces for 2023, according to a quarterly report form the World Platinum Investment Council, or WPIC, released Wednesday. That was the deepest deficit based on WPIC data going back to 2013.
Total year-on-year demand grew by 25% to 8.009 million ounces in 2023, while supply fell 2% to 7.131 million ounces, the second-lowest figure since 2013, surpassed only by the COVID-impacted year of 2020, WPIC said.
Supply
The market has seen declines in prices for palladium, as well as rhodium, which has "eroded" the profitability of platinum group metals, or PGM, mining operations, and led to announcements of restructuring plans from all of the major producers, Edward Sterck, director of research at WPIC, told MarketWatch.
Anglo American Platinum Ltd. (ZA:AMS) (ANGPY), the world's largest platinum producer, estimated total PGM 2023 output at 3.806 million ounces, down from 4.024 million in 2022, and for this year, it said production was expected to be between 3.3 million and 3.7 million ounces.
Sterck said WPIC has lowered its total global platinum mining supply projection for 2024 by more than 250,000 ounces since its platinum quarterly report released in November. In its latest report, it pegged 2023 total mining supply at 5.636 million ounces, and forecasted 2024's at 5.489 million ounces.
"This is a dynamically evolving situation and it may be that not all the downside risks to mine supply are captured" in WPIC's latest platinum report, Sterck said.
After all, platinum prices have declined despite the fact that supplies have come up short of demand. The lower prices have dulled incentive for PGM miners.
Prices for most-active platinum futures lost 6.8% last year, and trade more than 8% lower this year to date, according to Dow Jones Market Data. The April platinum contract (PL00) (PLJ24) settled at $923.40 an ounce on Comex Thursday.
Supply risks
Sterck emphasized the risks to platinum supplies, both in terms of mining and recycling.
"Recycling supply has been increasingly constrained for a number of years, resulting in progressively lower output," he said. Recycling in 2023 was 25% below the preceding five-year average, he said, with recycling challenges including a shortage of end-of-life vehicles and regulatory restrictions.
These headwinds may be overcome with time, and the assumption is for a 7% recovery in recycling rates this year, but there are "risks to the timing and magnitude of the recovery," said Sterck.
Stockpiles
WPIC believes the supply deficit in platinum hasn't been able to boost prices because automakers accumulated excess PGM inventories during the 2020 to 2022 period.
That's when they produced less vehicles than had been planned due to COVID-19, which was then followed by a shortage in semiconductors, said Sterck.
"Managing this inventory lower has reduced their purchases since then, which has taken the heat out of the market," he said. This process is now "close to having run its course."
In its report, WPIC said automotive platinum demand climbed by 16% to 3.272 million ounces last year on the back of rising vehicle production and a greater hybrid vehicle share, with increased PGM loadings, or amount of usage of these metals for each vehicle, linked to hybridization.
Stricter emissions standards for light- and heavy-duty vehicles, particularly in China, also drove demand growth, it said, while the substitution of higher-priced palladium (PAM24) (PA00) with platinum reached 669,000 ounces in 2023, up from 391,000 in 2022. Palladium for June delivery settled at $1,042.40 an ounce on Thursday.
Read: https://www.marketwatch.com/story/platinum-rises-from-ashes-of-dieselgate-to-outperform-palladium-whats-next-0d40415e
For 2024, WPIC sees a more muted pace of growth in automotive demand, with a projected rise of 1% year-on-year to 3.297 million ounces. That would be a seven-year high, it said.
Higher prices?
Automakers who were likely drawing down the platinum stocks they had on hand may be completing that inventory management soon, said Sterck.
That implies tighter supplies will soon lead to higher prices for platinum.
Mine supply isn't going to increase, so supplies need to be attained from above ground stocks, said Sterck, but trade flows suggest that these above-ground supplies are concentrated in China. "It is unclear how available they are to the world at large."
This year, WPIC expects the global platinum market to see a deficit of 418,000 ounces, a second annual deficit in a row, though with expectations for lower supply and lower demand leading to a smaller deficit than last year.
-Myra P. Saefong
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(END) Dow Jones Newswires
March 08, 2024 07:20 ET (12:20 GMT)
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