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The platinum shortage does not influence the price yet

04 march 2024

Although the price of platinum in 2023 looked significantly stronger than the price of palladium, this is clearly not the result platinum producers, investors and experts expected a year ago. Exaggerated optimism about platinum can be seen when looking at the results of the last year’s LBMA Annual Precious Metals Forecast Survey. The most bearish forecast turned out to be very close to the true price, and the average price forecast ($1,080 per ounce) made by the analysts surveyed was 11% higher than the actual average price ($965 per ounce) in 2023. The price quotations were adversely affected by macroeconomic factors that led to the sale of the PGM reserves accumulated by auto manufacturers, as well as the unexpected stability of primary platinum production in South Africa, which was expected to decline due to power outages. These factors overpowered the effect of the deficit in the platinum market, which some experts consider to be a record one over the last 50 years.

The forecasts are that in 2024, platinum shortages will continue, with the demand in automotive industry continuing to rise amid the replacement of palladium, although the overall number of vehicles with autocatalysts is expected to decline due to increasing penetration of electric vehicles into the market. But the experience of 2023 suggests a structural deficit is not a sufficient guarantee for the price growth. The situation could change if the largest platinum producers begin to more actively scale down production at their high-cost enterprises.

Record-breaking deficit

The World Platinum Investment Council (WPIC) expects that by the end of 2023, the platinum deficit is set to amount to 1.071 mn ounces, which is a historically record value both in absolute terms and as a percentage of annual demand. The deficit is equivalent to 13% of estimated annual platinum demand. This estimated value includes the investment demand of 386 thousand ounces versus outflow of 640 thousand ounces a year earlier.

WPIC expects the platinum supply to fall by 3% (by 182 thousand ounces) in 2023 to 7.079 mn ounces, which is 9% below the average level of supplies since 2013. Demand in 2023 is expected to grow by 26% (almost by 1.7 mn ounces) to 8.15 mn ounces.

In December, Norilsk Nickel revised the estimated supply and demand balance in the platinum market, and now the company predicts a deficit (excluding the investment demand) equal to 400 thousand ounces instead of a balanced market. According to the company’s estimates, demand will grow by 8% (by 600 thousand ounces), and supply will decline by 1%. “The primary platinum production growth driven largely by the resilience of South Africa’s mining companies to power outages will not be sufficient to offset the increased demand for platinum from the automotive sector,” Norilsk Nickel explained. Another factor was the decrease in platinum recycling volumes.

Forecasts for 2024

According to Norilsk Nickel estimates, the platinum market is expected to enter into deficit in 2024 that will be comparable to the last year’s figures and it will amount to 300 thousand ounces. Demand growth will be subdued (by 2%, or 100 thousand ounces), and supply will recover somewhat and rise by 2%, or 400 thousand ounces. The recovery in platinum recycling volumes will be offset by an increased industrial consumption in the glass-making and electronics sectors, Norilsk Nickel expects. At the same time, there is a significant risk from primary platinum production in South Africa and North America amid the potential cost optimization at low-margin projects in those regions.

HSBC Global Research also suggests the structural deficit of platinum would remain roughly at the same level in 2024 and increase in 2025, impacting the metal price. Platinum consumption in the automotive industry may increase further due to the continued trend to replace palladium. The prospects for other sources of the industrial demand will also have a positive effect on the platinum consumption, according to HSBC.

WPIC forecasts a significant reduction in the metal deficit in 2024 compared to 2023, to 353 thousand ounces. This year, the platinum supply will increase by 3%, to 7.31 mn ounces, due to the commissioning of power generating capacities in South Africa, which will result in reducing the downtime at the metallurgical plants in the country. And the platinum demand will decline by 6% (by 487 thousand ounces), to 7.663 mn ounces, influenced by a reduction in industrial and investment demand (by 285 thousand and 303 thousand ounces, respectively).

Autocatalysts vs. electric vehicles

WPIC estimates the platinum demand from the automotive industry at 3.262 mn ounces in 2023, up 14% from 2022. The platinum demand growth was driven by higher-than-expected auto sales and replacing palladium by platinum in gasoline-powered vehicles, as well as by the overall growth in PGM loadings in catalysts, especially for trucks and off-highway vehicles.

But in 2024, after three consecutive years of double-digit growth in demand for platinum used for vehicle manufacturing, the automotive platinum consumption is set to grow just by 1.5%, to 3.312 mn ounces, according to the WPIC forecast. While total vehicle production is set to increase by 2 mn units, the production of autocatalyst vehicles is expected to decline from 78 mn to 77 mn due to increased penetration of battery electric vehicles (BEVs) into the market. The biggest impact on internal combustion engines (ICEs) is expected in China where 1 mn fewer gasoline-powered vehicles are planned to be manufactured. This may be partly offset by increased production of heavy-duty vehicles with platinum-dominated catalysts.

Even despite the BEVs becoming increasingly popular, the supply and demand trends will favour platinum over palladium, the Deutsche Bank Research’s experts state. According to their estimates, global sales of ICE vehicles, including non-plug-in hybrids, are poised to decline by 3.1% in 2024 and by 3.7% in 2025. From 2025 to 2030, the pace of introduction of electric vehicles will accelerate and the ICE sales are set to decline more rapidly - by 5.1% per year. This will only be partially offset by increased PGM loadings in catalysts to meet more stringent emission standards. As a result, platinum autocatalyst demand may fall by 40 to 60 thousand ounces in 2024 and 2025, but the palladium autocatalyst demand may be affected much more, decreasing by 270 to 300 thousand ounces per year.

On the other hand, palladium is less affected by production cuts made by producers who are forced to adjust their performance because the cost of the PGM basket comes closer to the production costs for the first time since 2018. The largest producer Amplats lowered its production forecast to 300 thousand ounces in 2024 and 300 thousand ounces in 2025 to adjust both the production from its own mines and the purchases of concentrate. Based on the Amplats’ production mix, this would imply a greater reduction in platinum output than palladium (134 thousand ounces vs 95 thousand ounces). As a result, the palladium’s balance is set to continue declining compared to platinum, with platinum trading at a premium to its allied metal in 2025, Deutsche Bank Research concludes.

Other sectors showing demand

Industrial demand for platinum in 2023 is expected to reach 2.652 mn ounces, up 14% year-on-year. This figure will be the highest on record, WPIC believes. The main driver for this demand is an increase in production capacities of glass and chemical products (to a lesser extent), which offset the weakening oil and electrical segments. In 2024, industrial demand is poised to fall by 11% from the 2023’s record-high level and amount to 2.367 mn ounces, although this result will remain 14% above the average figure since 2013.

Demand for platinum jewelry in 2023 will decrease by 3%, to 1.852 mn ounces, according to WPIC. The demand for platinum jewelry is expected to rebound by 3% in 2024 due to rising platinum jewelry output in China amid the stronger economic growth and the improved consumer spending pattern, as well as platinum becoming more popular in India. In the US, the growth in sales of lab grown diamonds (LGDs) could be an unexpected positive factor, as the lower price for LGDs allows spending more money for more expensive wedding ring settings.

WPIC believes that investment demand will show a significant progress in 2023, although the result to be achieved will be only a two-year low, far inferior to previous periods. In 2024, net investment demand is set to decline to 82 thousand ounces amid the expected outflows of 170 thousand ounces from the ETFs due to persistently high interest rates suppressing the demand for non-yielding assets. When cash deposits offer record returns, retail investors show little interest in precious metal investment products. The prospects for investments in coins and bars also remain weak, WPIC states.

Manufacturers begin layoffs

In 2023, global production of refined platinum will increase by 3%, to 5.9 mn ounces, but a significant decline in refining will put pressure on total supply this year, Norilsk Nickel believes. Platinum recycling is low due to macroeconomic reasons because high inflation and expensive loans make car owners use their cars longer. In addition, with low prices for PGMs, the stakeholders prefer to accumulate materials waiting for more favorable conditions to start recycling. According to Sibanye, recycling volumes fell by 42% over 9 months compared to the 2022 figures.

Platinum recycling is expected to resume in 2024, but primary platinum supply may face problems, some of which were not encountered in the past, Norilsk Nickel believes. Risks associated with the energy supply from the state-owned power generating company Eskom in South Africa remain because after the presidential elections in this country, power load crisis may exacerbate. “Secondly, ongoing inflation in the mining industry and falling PGM prices are putting large mines in North America and South Africa under economic pressure, which will force mining companies to close unprofitable mines and lay off thousands of workers,” Norilsk Nickel said in its review.

Norilsk Nickel estimates that if low prices for PGMs continue into 2024 and there is no significant depreciation of the South African rand, mining at the operations with a combined production of 1.4 mn ounces of palladium, 2.5 mn ounces of platinum, and 0.3 mn ounces of rhodium will become economically unviable.

A number of South African producers have already begun cost-cutting programs. Last year, Sibanye-Stillwater announced the shutting-down of its two older mines and the restructuring of its two more high-cost operations. This will result in a decrease in annual output at the Marikana and Rustenburg mines in South Africa, the costs of which are in the 3rd and 4th quartiles of the cost curve, respectively, as well as in adjusting the production forecast for 2024. The US-based Stillwater company - also suffering from falling prices and rising costs - announced almost 300 job cuts, which will also affect the company’s production. The Impala company has cut jobs at some of its mines. “The recent fall in prices for the PGM basket combined with a lack of refining capacity in the region makes the launch of both new and existing projects highly unlikely,” Norilsk Nickel states in its review.

Reduced platinum supply made by the South Africa’s mining industry amid strong platinum demand can lead to a significant increase in platinum prices over the next few months, says expert David Davis who has a 45-year experience in the South African mining industry. He refers to the fact that China is actively increasing its platinum reserves, having accumulated 12 mn ounces, which account for 57% of the total global reserves. These volumes are beyond the reach of the Western countries whose reserves are declining, and the mining industry is unable to respond to the demand challenges, which can jeopardize the pace of global decarbonization process. According to Davis, a very substantial rise in the price of platinum as a response to the global platinum deficit is only a matter of time.

Sergey Bondarenko for Rough&Polished