The World Platinum Investment Council (WPIC) has reiterated its forecast of a record platinum market deficit of almost one-million ounces this year.
The deficit is a result of strong 28% year-on-year growth in demand, in combination with a constrained outlook for supply, which is likely to be down 1% year-on-year.
Moreover, looking to 2027, the WPIC predicts consecutive and deepening yearly deficits supported by continued demand growth, in particular automotive demand.
Given limited scope for mine or recycling supplies to increase to cover these shortfalls, supply will have to be met from above ground stocks, it states.
The WPIC defines above ground stocks as the year-end estimate of cumulative platinum holdings not associated with physical platinum held by exchanges, exchange-traded funds or working inventories of mining producers, refiners, fabricators or end-users.
“This definition is intended to specifically isolate the unpublished vaulted platinum holdings from which a supply-demand deficit can be readily supplied, or to which a supply-demand surplus can readily flow. The flow of this metal is how the market clears or balances at spot metal prices,” states the WPIC.
It adds that, as at the end of last year, platinum above ground stocks were estimated to be almost five-million ounces, which, at first glance, is more than enough to cover this year’s shortfall and those out to 2027.
This level, however, only equates to 39 weeks of yearly demand and is expected to fall steeply over the next few years, absent any material changes to supply-demand fundamentals.
“In addition, significant platinum imports into China in recent years have resulted in around 80% of the estimated above ground stocks being owned there, and is effectively unavailable to the rest of the world owing to export controls.”
Consequently, the WPIC estimates that above ground stocks available in the rest of the world will be at a level commensurate with only six weeks of demand by the end of this year.
“Typically, when above ground stocks either become depleted or are not ‘for sale’ by owners at the prevailing price level in the spot market, and are hence unavailable to balance market deficits, the commodity price would be expected to increase”.
The price would be expected to increase to a point sufficient to either attract new supply into the market, or to cause a decline in platinum demand.
In the case of platinum, the WPIC stresses that the likelihood of a supply response to higher prices is extremely low.
“South African mine supply is subject to long lead times for new production and is currently facing operational challenges owing to electricity shortages.
"Supply from Russia – which is unlikely to respond to higher prices because it is produced as a by-product of nickel mining – also has downside risk owing to mine equipment and technology-related sanctions resulting from Russia’s invasion of Ukraine”.
Furthermore, as platinum is mined from polymetallic deposits containing other platinum group metals and base metals, the WPIC adds that there is a limited ability to flex production based on the pricing of any one individual commodity.
“The platinum price has responded positively to meaningful deficits in the past. It will be interesting to observe its response to ongoing market tightness as the current scenario unfolds, especially should security-of-supply concerns materialise, prompting end-users to add to buffer inventories which is further adding to the platinum shortage”.