JOHANNESBURG (miningweekly.com) – This year could potentially turn out to be quite an interesting year for platinum as a commodity and also as an investment, with the 2023 platinum market deficit of 878 000 oz forecast to be followed by a 2024 deficit of 418 000 oz.

In addition to automotive demand being poised to reach the seven-year-high figure of 3 297 000 oz, demand for platinum from stationary fuel cells and electrolysers is set to rise by more than 120%, amid green hydrogen projects getting under way in Europe, following oversubscribed auctions, and also in North America, where the Inflation Reduction Act is stimulating widespread development.

Contrasting sharply with this are the two substantial consecutive yearly platinum supply deficits, plus a seeming momentous decline in above-ground stocks, which is kindling hopes of a much-needed price rise.

“We haven't seen the underlying fundamentals translate into price so far, for automaker inventory management reasons, but as the above-ground stocks are being depleted, you'd expect the residual above-ground ounces to require higher prices,” World Platinum Investment Council (WPIC) research director Edward Sterck outlined to Mining Weekly in a Zoom interview to mark the publication of WPIC’s latest quarterly report for the fourth quarter of 2023, along with a full 2023 year review and a revised 2024 forecast. (Also watch attached Creamer Media video.)

While demand rose above eight-million ounces last year, supply fell to seven-million ounces, the second-lowest figure since 2013, surpassed only by the Covid-hit 2020.

Even this year’s 6% lower demand expectation easily outdoes the five-year demand average since 2019, while supply is projected to decrease still 1% further year-on-year.

“It seems that the automakers have effectively accumulated excess inventories of around a million ounces of platinum, and that roughly matches up with the major deficit of 878 000 oz that we estimate for 2023.

“We think what’s happened is that during 2023, automakers effectively managed their new purchasing commitments to run down those excess platinum group metal (PGM) inventories, and that effectively took the heat out of the market. That process is continuing to run through into the beginning of this year but we think it has largely now run its course,” Sterck highlighted.

What has not run its course, however, is automotive demand for platinum, which is expected to hit a seven-year high in 2024, after having jumped 16% to 3 272 000 oz last year.

Traditionally, 40% to 45% of platinum has gone into exhaust treatment systems for internal combustion engine (ICE) vehicles and on the horizon is major potential demand for green hydrogen amid more than $300-billion in government subsidies being turned into green hydrogen projects that are under construction and being commissioned.

As green hydrogen demand grows, platinum offers investors a way of engaging with assets associated with compulsory global decarbonisation, with many companies advancing low-emission initiatives for implementation well ahead of the 2050 global deadline.

With various governments around the world continuing to announce green hydrogen subsidies, platinum-based hydrogen implementation could be pulled closer faster.

Mining Weekly: What is driving the ongoing high demand for platinum in the automotive sector at a time when ICE vehicle production is decreasing?

Sterck: That’s a very good question. If we think about the overall drive train landscape, it seems quite possible that 2023 was the post-Covid high watermark for ICE vehicle production. In 2024, the outlook for ICE vehicles is lower than for last year, and yet we continue to see growth in demand for platinum for automotive applications. There are really two driving forces behind that. Firstly, we still expect increased platinum-for-palladium substitution to occur this year. That may begin to abate or even reverse in future years, given that the price differential between platinum and palladium has more or less closed. But the bigger factor really going forwards is arguably increased hybridisation of the drive train. This is something we have been expecting, but it seems to be happening a little bit faster than we might have otherwise anticipated. Interestingly, it's possibly also happening at the expense of future growth in battery electric vehicles (BEVs). Consumers seem to be pushing back against the “everyone has to electrify as rapidly as possible” mantra. Simply put, not all geographies and not all vehicle roles are suitable for battery electrification, with current battery technologies. There are economic aspects behind consumer reluctance as well. Just using data from the UK, BEVs, on average, are around 55% more expensive than the ICE equivalent and during this tough economic period, that's quite a big ask for consumers to make, so we're seeing consumers pushing back a little bit. For the first time, really, ever, we've seen a downgrade to BEV production in 2023 versus initial expectations, and so looking ahead, what we're seeing is that potentially ICE hybrid vehicles and plug-in ICE hybrid vehicles are being favoured by consumers at least, as the transition technology, and we're seeing some of the automakers begin to reflect that in their vehicle line-up as well. The key point to make here is that because hybrid vehicles typically operate with the engine being turned on and off more frequently, and therefore at a lower engine temperature, you need higher PGM loadings in the exhaust treatment system to ensure that those vehicles remain in compliance with emissions legislation. It's roughly around 10% to 15% higher loadings per vehicle, and that is obviously supportive of automotive demand for platinum going forward, in combination with that embedded platinum-for-palladium substitution.

Will the green investment case for platinum get stronger this year?

Certainly this year looks like it's going to be a bit of a transformative year. If we just focus on the other industrial demand and the stationary applications for green hydrogen that utilise platinum as a catalyst, this year we're expecting hydrogen demand for platinum from stationary fuel cells and electrolysers to increase by more than 120%. Admittedly, that's off a very small base, but for this year what is potentially more interesting, is the deployment of dollars from government subsidy schemes. If you think about the landscape, we've got slightly over $300-billion of government subsidies available for green hydrogen. That's been talked about for around a year now, and what we're seeing in 2024 is that those dollars are being deployed. Europe has started holding its first auctions for the production of green hydrogen and for those subsidies, we're seeing a significant over-oversubscription. Similarly, in North America, through the Inflation Reduction Act, we're seeing the government there begin to deploy dollars towards projects that are being started and which are being developed, so I think the key point is that through the course of this year, we'll get more and more news flow around dollars actually being deployed on the ground, projects being commissioned and construction started. As a result, that's really going to focus the investor mind on platinum and its green credentials, and thinking about how hydrogen demand for platinum is going to grow over the course of the rest of this decade, and potentially become one of the most meaningful sources of end demand for platinum over the course of the next ten years or so.

What is expected to drive the ongoing positive net investment in platinum forecast in your latest quarterly?

Principally, it's ongoing demand for physical bar and coin. We are expecting to see reasonably robust demand in certain geographies, particularly in North America and Europe. There are some clouds around but overall we are expecting positive demand in those geographies and that's partially offset by the weaker bar and coin demand outlook for Japan in particular, which is related to the ongoing weakness of the yen, resulting in the local platinum price hitting certain thresholds and from which one would expect to see disinvestment from physical bar and coin. The more challenging part of the equation really is in terms of exchange traded funds (ETFs) in a high interest rate environment, which makes it more challenging from an investor perspective, to invest in non-yielding assets, including physical commodities. That penalises ETFs of those underlying assets, including platinum as well as the other precious metals. That's the big challenge for this year but if we look towards the second half of the year, and I'm speaking perhaps a bit more in terms of my own personal opinion here, expectations are that interest rates will begin to ease in the second half of the year, and as we see that more accommodative environment come through, that’s generally more supportive towards ongoing demand for commodities and it's also more supportive in terms of the investor interest in non-yielding assets, including platinum.

What will be the result of expected platinum production reduction in South Africa and Russia and the ongoing recycling decline?

If we look at the impact so far, and we compare the latest Platinum Quarterly with the one that we published in November last year, the estimate for 2024 mining supply is down by about 200 000 oz, which, to a large extent, reflects the impact of the announcements that have been made. What I would say is that if you look at production going forward, there's still around 36% of global supply that could be considered to be high-cost ounces, and depending upon the impact or the success of the restructuring plans that have been announced, it's possible we could see some risks to the downside in terms of future supply from various producers around the world. As things stand at the moment, we think that, based on the announcements that have been made, production will stay at the levels that we're forecasting at present but there are some potential risks to that outlook as things unfold through the course of the year.

Despite the record demand in 2023, there's an expected decrease in industrial demand for platinum in 2024. Can you elaborate on the reasons behind this?

Put simply, last year was a record year for industrial demand, supported by a significant number of capacity additions in the glass and chemicals subsectors. Just as a reminder, most of the industrial demand is driven by the timings of when new facilities are commissioned. When you commission a new facility, you load up that facility with the required platinum and then, on an ongoing basis, the demand is more or less just incremental to make up for any losses that have occurred during the manufacturing process. The key thing is the timing of those capacity additions. We're expecting far fewer glass and chemicals capacity additions in 2024 than was seen last year, but on the other hand, we are seeing stronger demand coming through from other parts of the industrial spectrum, in particular, from the growth in stationary fuel cells and PEM electrolysers and for platinum that goes into those hydrogen production and utilisation facilities. I guess the point for 2024 ultimately is, yes, it is down on 2023, but 2023 was a record year and  2024 is still the fourth strongest year in our time series for industrial demand and remains significantly elevated versus the pre-Covid industrial demand levels. So, despite the challenging economic environment, we're continuing to see robust demand for platinum in industrial applications. There are a couple of ancillary reasons for that. Firstly, if you exclude jewellery and investment uses, more than 80% of platinum’s end-uses are in purposes where it's producing energy requirements and reducing harmful emissions, and the need to do that doesn't go away, even during a tough economic period, particularly as we go through the global energy transition. That sustains demand for platinum in and of its own. Secondly, in terms of glass demand, we're expecting a doubling of installed wind capacity between now and 2030 and you need significant growth in the production of fiberglass in order to meet those wind turbine growth plans, so again, over the medium to longer term, we think the industrial outlook for platinum continues to remain pretty robust.

RECYCLED SUPPLY

Global 2023 recycled supply was down for the third consecutive year in 2023, down 14% year-on-year to 1 495 000 oz, some 22% below the pre-Covid five-year average.

This was mainly owing to a drop in spent autocatalyst recovery, driven by stricter North American anti-theft regulations and China's restrictions on autocatalyst recycling. A 7% improvement to 1 600 000 oz is expected in 2024 as spent autocatalyst supply recovers and regulatory restrictions ease.

Global mine supply for 2023 was 5 636 000 oz, marking a 1% uplift from the reduced supply levels of the previous year. Looking ahead to 2024, global platinum mine supply is expected to decrease by 3% to 5 489 000 oz.

WPIC CEO Trevor Raymond described the continuing deficits as highlighting platinum’s demand resilience and supply vulnerability amidst global economic challenges.

Raymond made the point that platinum’s significant 2023 demand growth and its expected level of demand in 2024 are, to a large extent, predicated on strong automotive demand growth, despite a decline in ICE vehicle production, which he put down to stricter emissions legislation, increased hybridisation, and significant growth in the substitution of platinum for palladium.

“It’s worth noting that once platinum substitution for palladium is implemented, the associated platinum demand is unlikely to be reversed during the seven-year life of the vehicle platform, even if palladium were to trade at or below the platinum price on a sustained basis,” Raymond said.

PALLADIUM, RHODIUM PRICE DROP

Conversely, while platinum demand remains robust, the downside supply risks have heightened owing to the price drops of palladium and rhodium, with some supply rationalisation plans already announced.

“The short-term downside impact on mine supply remains uncertain, but any reduction also severely constrains any near-term supply response to demand growth or higher platinum prices.

“There are also strong downside risks to recycling supply, which is running well below historical levels due to a shortage of end-of-life vehicles, as consumers continue to drive vehicles for longer in the current economic climate.

“While these supply risks have the potential to deepen the platinum market deficits beyond current projections, they could also have a significant effect on the palladium market as they would delay or eliminate the widely expected surpluses.

“The challenge for platinum investment has been the lack of a price response to the underlying fundamentals. We believe this is a function of range-influenced algorithmic trading and automakers’ management of excess platinum inventories, accumulated when they underproduced more than 30-million vehicles as a result of the pandemic and the semiconductor shortage.

“Range-bound trading will likely continue until price breaks out of that range, but we estimate that the automaker inventory management process is close to having run its course.

“Moreover, the growing connection between platinum and the hydrogen economy is capturing global investor interest, as its use in green hydrogen production via electrolysers plays a key role in global decarbonisation,” Raymond emphasised.  

WPIC is a global market authority on physical platinum investment, formed to meet the growing investor demand for objective and reliable platinum market intelligence.

WPIC’s mission is to stimulate global investor demand for physical platinum through both actionable insights and targeted product development.

Created in 2014 by the leading platinum producers in South Africa, WPIC’s members are Anglo American Platinum, Implats, Northam Platinum, Sedibelo Platinum and Tharisa.