Commodities

Global platinum market to be in large surplus this year and next

G Chandrashekhar | Updated on November 24, 2021

Demand for platinum is said to be resilient. With emission norms getting tougher, the automotive industry is using more platinum in auto-catalysts   -  istock.com/AlexLMX

This surplus is the outcome of a 24% jump in output coinciding with weak investment demand

The world platinum market is substantially oversupplied this year and the situation will continue into 2022, the World Platinum Investment Council (WPIC) has said in its latest report.

In the current year, the market is in a supply surplus of 769,000 ounces — a significant upward revision from the earlier estimate of 190,000 ounces.

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Strong industrial demand

This large surplus is the outcome of a big rise in production to the extent of 24 per cent coinciding with weak investment demand.

The WPIC has estimated that investment demand is 225,000 ounces this year, down by a whopping 86 per cent from last year.

The report pointed out that last year the supply was restricted because a converter plant in South Africa remained idle. Production is catching up this year. At the same time, demand from the automotive industry is set to grow by 14 per cent.

While chip shortage is widely seen as the industry villain, demand for platinum is said to be resilient. With emission norms getting tougher, the automotive industry is using more platinum in auto-catalysts. What’s more, non-automotive industrial demand is also expected to surge by 26 per cent.

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Muted investment demand

While physical demand is robust, investment demand continues to remain enervated. Taken together, the overall platinum demand is set to decline by about five percent this year.

Next year is going to be no different with large oversupply. The WPIC has projected 2022 surplus to aggregate a massive 637,000 ounces. In other words, supply is expected to remain stable in the face of robust physical demand from automotive and industrial sectors. Investment demand will continue to remain subdued in 2022.

Interestingly, after a year of a sharp decline in refined platinum supply in 2020 in the wake of the Covid-19 pandemic, national lockdowns, supply chain disruptions and weak economic activity, at the start of this year, the investor sentiment towards the precious metals was positive because of expectations of strong fabrication demand.

Indeed, platinum price had topped $1,300 an ounce in February 2021, the highest since late 2014. However, as surpluses emerged, investor sentiment took a beating as a result of which short-term investors exited in droves. They may not return in 2022 either because of continued oversupply.

However, it is necessary to remember that platinum mine supply is extremely concentrated. A small number of South African companies account for 70 per cent which makes the metal vulnerable to supply side shocks.

On the other hand, physical demand for industrial consumption is expected to continue to register growth. Historically, platinum’s value has been greater than that of gold; but the metal is now trading at just about half the price of its yellow cousin.

(The writer is a policy commentator and commodities market specialist. Views are personal)

Published on November 24, 2021

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