JOHANNESBURG (miningweekly.com) – The global platinum market ended 2015 in deficit by 380 000 oz with the key drivers of the shortfall including a 5% increase in automotive demand, reaching 3.46-million ounces, which was up from 3.29-million ounces in 2014 and 3.16-million ounces in 2013.

This is according to the World Platinum Investment Council (WPIC) sixth Platinum Quarterly for the fourth quarter of 2015, which was released on Wednesday.

WPIC research director Trevor Raymond told Mining Weekly Online that explaining the price softness of platinum over the past three years had been a challenge.

“We have seen a welcome strengthening in the first two months of this year, but the longer-term decline has been entirely against the strong fundamentals of the global platinum market.

“Most of the commodities that have declined in price over that period have been in surplus. As might be expected. However, platinum has declined in price, despite healthy 5% deficits on average over the past four years,” he stated.

Raymond noted that, while most of the commodities whose prices had suffered significant declines in the past 12 months were heavily exposed to Chinese industrial demand (50% to 60% of their global demand), platinum was, at most, only 30% exposed to China.

Further, he pointed out that at least 20% of that exposure was to China’s jewellery consumption, linked to personal disposable income which was growing at a rate “almost double” that of the overall economy.

“Again, not a logical rationale for platinum price softness,” Raymond acknowledged.

Therefore, he commented that platinum appeared to have been traded as if it was a surplus industrial commodity, which it was not.

“We believe the decline in the platinum price that started in 2011 was driven largely by sales from investors’ vaulted holdings. However, the current price is being set by momentum and short-term traders, with a tightened correlation between the gold and platinum prices.”

Raymond explained that, before 2007, there were no exchange-traded funds (ETFs) for platinum. Therefore, if investors wanted to make an investment in platinum they had to physically buy the metal and store it.

“This resulted in many platinum investors storing large volumes in vaults around the world. The problem with this, is that these stocks are confidential and were not published, which means there are no records for them.”

However, he said that, after the introduction of ETFs in the platinum sector in 2007, some investors withdrew their platinum stocks from their vaults and used the ETF method to trade instead. Nonetheless, many platinum investors kept their platinum in vaults.

The WPIC estimates that about two-million ounces of platinum stock had been sold from private vaults between 2011 and 2015, which has had an impact on the platinum price. The WPIC also estimates that these vaults still hold around 2.3-million ounces of platinum stocks.

Raymond said the WPIC believed that many of the investors that sold their physical platinum holdings, left the sector and no longer participated in the platinum market.

“We, therefore, think there have traditionally been very few participants in the platinum sector and the ones that are currently participating have made money by selling it like they would precious metals like gold.

“This is why the platinum price trends have largely mirrored the gold sector,” he stated.

Raymond added that the prevailing tide of analysis and media commentary had been pessimistic on most aspects of platinum demand and bullish on platinum supply.

“Our analysis supports different conclusions. Demand from all sectors is robust, with growth in European diesel platinum demand and resilient jewellery demand in Asia. Supply from primary producers is declining owing to an increased portion of uneconomic mining and the 80% reduction in annual mine capital expenditure over the past six years,” he asserted.

Meanwhile, the report noted that despite the impact of the Volkswagen diesel vehicle emissions investigation, demand growth in 2015 was led by Western Europe vehicle sales growth, up 9% year-on-year, where the imposition of the new Euro 6 legislation also increased platinum loading per car. Automotive demand from India also grew by 9%.

Global investment demand increased by 110 000 oz over the year, with a global fall in ETF holdings eclipsed by a surge in demand for bars and coins, particularly in Japan, which experienced record buying in the fourth quarter of last year.

There was a 4% increase in industrial demand during 2015, “buoyed” by a 2% increase in chemical demand growth driven by North America, Western Europe and China. Greater global demand for oil refining and a swing from refinery reductions to net capacity expansion saw demand from the petroleum sector more than doubling from 65 000 oz in 2014 to 160 000 oz in 2015.

The report further highlighted that jewellery sales contracted by 4% over the year owing to the fall-off in Chinese demand.

In contrast, demand for platinum in India grew by 26% on the back of strong bridal growth and increased sales of men’s jewellery. Refined production grew by 24% over the year, led by a 41% increase in output from South Africa, where operations affected by the 2014 strikes returned to prestrike levels and producer sales again exceeded refined production.

Further, the global supply from recycled platinum fell by 15% over the year to 1.73-million ounces, as lower platinum group metals prices reduced the flow of scrap catalysts from collectors, while depressed steel prices reduced the scrapping of vehicles.

Above ground stock levels ended 2015 at 2.32-million ounces, down by 14% from 2.7-million ounces in 2014.

“The Platinum Quarterly clearly shows that the fundamentals of the platinum market are sound. Demand from all sectors remains robust, supported by growth in European diesel platinum demand and resilient jewellery demand in Asia.

“It is encouraging to see that personal disposable income, which is linked to China jewellery consumption, is growing at a rate almost double that of the overall economy,” WPIC CEO Paul Wilson said.

The WPIC expects a 135 000 oz deficit for platinum in 2016, with refined production anticipated to contract by 1% and South African mine supply by 2% owing to expected production disruptions related to wage negotiations.