JOHANNESBURG (miningweekly.com) – Platinum demand increased by 32% year-on-year to 2.56-million ounces in the first quarter of this year, following a surge in investment demand, the World Platinum Investment Council (WPIC) noted in its latest ‘Platinum Quarterly’ report, released on Monday.
Investment demand was high enough to offset declines in the automotive, jewellery and industrial segments, with total investment demand reaching 765 000 oz, owing to the largest ever quarterly increase for exchange-traded fund (ETF) holdings, at 690 000 oz.
Bar and coin demand accounted for 75 000 oz, which, as WPIC research director Trevor Raymond noted, was “actually fantastic”, as it works out at an average of around 300 000 oz/y, in line with the average yearly bar and coin demand over the last 30 years.
The majority of the ETF growth was in South Africa, where investors added 418 000 oz to their holdings. The increase was larger than that of the second quarter of 2013, which followed the listing of the first platinum ETF in the country.
The UK accounted for the second-largest increase in ETF holdings, at 178 000 oz, while US and Swiss investors increased their exposure to platinum by 79 000 oz and 18 000 oz, respectively.
Raymond explained that the somewhat dramatic swing in ETF demand had been expected for several years but had never materialised until now. He added that the institutional investors he interacted with had been looking for a combination of factors that finally occurred in the first quarter, namely, a rising platinum price, short-term supply risk, the possibility of more diesel cars on the road, as well as the likely use of platinum in gasoline autocatalysts.
He was further encouraged by the fact that investors seem to be long-term holders. “We haven’t seen buying like this since 2013/14, and those funds held for anything between two and five years, which bodes well for a tighter market and further interest by investors.”
Additionally, he pointed out that both the Royal Mint and the South African Mint were producing platinum coins. The former’s product is “doing particularly well in the US,” providing a solid underpin for bar and coin demand.
Jewellery demand fell by 7% year-on-year in the first quarter, on the back of declining Chinese demand. The WPIC noted that jewellery demand rose in all other regions but overall jewellery demand growth has been slowing over the last two quarters.
Raymond added that, from an overall trend perspective, “jewellery has stayed pretty consistent”, commenting that there could be a slight reversal in the Chinese market, as, in the past, a rising platinum price resulted in increased consumer demand.
First-quarter industrial demand declined by 1% year-on-year, but was flat quarter-on-quarter. The WPIC explained that the increased platinum requirements for chemical catalysis in China was outweighed by lower demand for glass fabrication and other end-users. Raymond said industrial demand tended to mirror global economic growth and was, therefore, likely to grow in the long term.
Automotive demand in the first quarter was down 5% year-on-year, but just 2% lower quarter-on-quarter. Moreover, Raymond explained that developments in the palladium market would almost certainty result in some substitution of palladium by platinum.
“Palladium is in its eighth consecutive deficit. Bloomberg reports that it has been in backwardation for over 18 months. Sustained backwardation is an indication that there’s a shortage of palladium ingot (that typically back speculative positions) and sponge (dissolved for use in autocatalysts). In general automakers are using heavier loadings to avoid any risk of noncompliance, which means more pressure on palladium demand.”
In terms of supply, total platinum supply reached two-million ounces in the first quarter, an increase of 15% year-on-year. Total mining supply was up 19% year-on-year at 1.53-million ounces, with South African output recovering from smelter problems in the first quarter of last year.
In terms of South African supply, the WPIC had previously flagged potential short-term risks as a result of the upcoming wage negotiations in the sector and unreliable electricity supply, but Raymond noted that the full-year forecast, “assumes that 2019 will have as good a year as 2018, and the release from smelters aside, production should be what it was”.
Recycling rose by 4% in the first quarter to 480 000 oz as increased recovery from spent autocatalysts offset a small decline in jewellery recycling. Raymond noted that an increase in the scrap steel price, as well as the massive increase in the price of palladium and rhodium, saw recyclers pushing to recover more autocatalysts, but noted that this renewed interest only resulted in an additional 75 000 oz.
The strong gain in demand during the first quarter significantly outweighed the growth in supply and resulted in the market being in deficit by 550 000 oz.
Nevertheless, this year is still expected to end in a surplus, although Raymond noted that the WPIC’s initial forecast had been revised downward from 680 000 oz to 375 000 oz. This was primarily due to the strong increase in investment demand.
Total demand for this year is forecast to rise 8% year-on-year, while supply is forecast to increase by 4%.