JOHANNESBURG (miningweekly.com) – What the World Platinum Investment Council (WPIC) is forecasting for 2022 is a reduced but still large platinum surplus of 627 000 oz.

But this surplus is extremely vulnerable to the issues the WPIC thinks may play out, particularly:

• slightly higher vehicle loading;
• certainly more substitution of platinum for palladium;
• concerns about supply from Russia, and
• those Russian supply concerns probably leading to more substitution of platinum for palladium. (Also watch attached Creamer Media Video.)

Equally, global risk and supply from Russia may prompt people along the supply chains and their counterparties to increase their buffer stock levels.

A little bit of stock increase by people using the metal, together with a bit more substitution, could suddenly turn the surplus into a balance or a deficit.

China importing more platinum than its identified needs was another factor that manifested itself very strongly last year. Right now, with all the concerns, speculative importing of platinum by China could be even higher.

The captivating thing for potential investors is that this is looking quite interesting for platinum, despite the surplus.

Moreover, many potential investors in platinum are likely to now be more acutely aware of the linkage between platinum and the hydrogen economy, the use of platinum in both producing green hydrogen and using green hydrogen in fuel cell electric vehicles.

“I think that's got a lot more people looking at platinum,” WPIC research director Trevor Raymond commented to Mining Weekly during a Zoom interview.

“And then when they look at platinum, it's not really about the demand growth because that fuel cell volume tends to be several years away, but the issues of constrained supply and demand growth,” he added.

Platinum supply is forecast to fall 5% in 2022 against a forecast demand increase of 2%.

“More people are looking at platinum and certainly much greater investor interests and more people are actually buying,” added Raymond.

Despite unprecedented headwinds, annual automotive demand in 2022 is forecast to rise 16%, WPIC stated in its May 16 first-quarter Platinum Quarterly, that has a revised full year forecast for 2022.

Unprecedented events in the first quarter of this year have had a huge impact on supply and demand, adding a layer of complexity on top of pre-existing issues, which will continue well into 2022.

During the quarter, both demand (-26%) and supply (-13%) fell year-on-year leaving the market in first-quarter surplus of 167 000 oz.

Amid the forecast of lower supply and greater demand, the surplus forecast for 2022 is a good 500 000 oz lower than the surplus forecast for 2021 of 1 128 000 oz.

The main thing that has driven down the surplus is the unwinding of the Anglo American Platinum inventory and mining production levels being below the levels of prepandemic 2019.

There have also been operational, covid, safety, labour and power outage difficulties and going forward there are many furnace rebuilds, which will lower stock levels.

There is also the supply risk out of Russia, which provides 10% of global platinum supply.

Recycling is down on fewer end-of-life vehicles entering scrap supply owing to fewer new vehicles being sold.

Moreover, the automotive industry’s global supply chain issues and global chip shortages that were already concerning have been aggravated by Russia’s invasion of Ukraine.

“So, we've got a lot of issues, and equally the global sentiment in terms of inflation, higher energy costs, tends to play into people buying fewer vehicles,” noted Raymond.

But despite the significant drop in the number of vehicles, automotive demand for platinum has been surprisingly strong, and is expected to go up by another 16% for the full year, driven by firstly the substitution of platinum for palladium.

“We've still got palladium trading at a $1 300 per ounce premium over platinum and that's been aggravated by supply concerns for certainly palladium out of Russia, Russia providing almost 40% of global mine supply.

“Those are certainly concerns and then the other reason that automotive has done particularly well is the increased loadings as emissions control regulations tighten, and particularly in China and heavy duty in China, the new regulations mean that there's a lot more platinum going on to heavy-duty trucks particularly. So, automotive, contrary to sentiment, is doing particularly well,” said Raymond.

Mining Weekly: When do you expect jewellery demand to start rising again in China?

Raymond: China's decline was certainly aggravated by the Omicron outbreak and the zero-covid policy and China and those lockdowns, which had been pretty severe in many cities. Shanghai gets the airtime but there's 90 other cities where there is certainly quite a big impact in terms of lockdown. Footfall traffic purchasing, that certainly has reduced sales in the quarter and for this year. To see that turning around, what we do know is that the brand awareness of platinum is still very strong in China. With rising prices, which are potential, certainly that demand could increase. You also make a very good point in that elsewhere jewellery has been particularly strong in the western world where people have made personal savings associated with the Western covid lockdowns not having to travel. Certainly, flight costs, travel costs have been down so people have a bit more disposable income. Certainly, that's been going into platinum jewellery. In the rest of the world, that is quite strong but that wasn't strong enough to offset the decline in China, sadly.

It’s good news that underlying industrial demand is above 2019 levels. Is this sustainable?

Overall, industrial demand is very similar to 2019 but what we did see in 2020 and 2021 was that industrial demand was particularly strong. That's a normal dynamic with industrial uses when you get capacity increases, and particularly in glass. In 2021, glass was sort of off the charts because of massive expansions. Firstly, they were delayed in 2020 and came through in 2021. What you've got with glass, for example, is that even though glass is down by nearly 50%, between last year and this year, it's still higher than 2019 levels, and that's typical, and there's just a huge amount of demand for glass, platinum used to produce glassfibre in the bushings to actually draw the thin threads. Then overall, industrial is highly correlated to economic growth, and that's the one segment that continues to rise. I think over the last 15 years, the industrial demand for platinum has risen at nearly double the global economic growth each year. So, industrial demand growth is still a good strong story over the next few years.

BAR AND COIN DEMAND

Bar and coin demand increased from 21 000 oz in the first quarter of 2021 to 60 000 oz in the first quarter of this year. However, despite particularly strong demand in North America, global demand growth was limited by US dollar price strength, sustained by a significant subsequent weakening in the yen, which drove local platinum prices to their highest since May last year, and which encouraged profit-taking among Japanese investors.

This trend is expected to continue into the next quarter, with global bar and coin demand for the full-year forecast to decline by 23%.

For exchange traded funds (ETFs), first-quarter liquidations stemmed primarily from one European ETF issuer and were contrary to investors’ finding hard assets attractive owing to surging inflationary worries and elevated geopolitical and economic uncertainties.

 A modest inflow in ETF holdings over the remainder of this year is forecast, resulting in a 50 000 oz full-year outflow.

In addition to decarbonisation, security of energy supply is now a far greater issue for all governments than it was before.

The role of green hydrogen in reducing European gas imports could drive a strategic acceleration of electrolyser construction, which would benefit platinum directly but also support the infrastructure needed for broad-based commercial adoption of fuel cell electric vehicles.

WPIC reports that investors looking for green opportunities are becoming increasingly aware of platinum’s key strategic role in unlocking hydrogen’s crucial contribution to achieving global net zero targets; being used in both electrolysers to produce green hydrogen and in hydrogen fuel cells.