Platinum investment demand expected to drive market into deficit
But World Platinum Investment Council forecasts 670,000oz platinum surplus for 2020
The global platinum market is predicted to slide into a small supply deficit in 2019, which should underpin the price of the metal, as investment demand unexpectedly surges to more than 1-million ounces.
The latest data released by the World Platinum Investment Council, set up by six SA platinum miners in 2014, shows buying of platinum-backed exchange traded funds (ETFs) as well as purchases of bars and coins of 1.095-million ounces in the first nine months of the year backed a forecast of 1.2-million ounces in investment demand for the full year.
This strong investment demand prompted a revision of the balance in the market to swing from a previously forecast surplus of 345,000oz to a deficit of 30,000oz, the council noted.
“A significant increase in investment demand more than offsets lower automotive, jewellery and industrial demand compared to 2018,” the council said in its third-quarter market update.
The council forecast a 670,000oz platinum surplus for 2020 with the strong performance in investment flows unlikely to be repeated.
Overall, supply of platinum would fall by 1% in 2020, while overall demand would fall by 10% “predominantly due to lower investment demand that, though forecast to be well above the five-year average, is not expected to include a repeat of this year’s record ETF buying”.
Rene Hochreiter, an analyst with Noah Capital, said he disagreed with the 2020 forecast and noted he expected substitution of a portion of palladium in autocatalytic devices on petrol engine exhausts with platinum.
Referring to Johnson Matthey’s outlook, palladium was in its eighth year of deficit and Hochreiter said his forecast was for above-ground stocks of the metal to run out in the first quarter of 2020, pushing the price to $2,000/oz from $1,760/oz on Thursday. The price could peak at $2,600/oz in 2023.
“Substitution in 2020 when stocks run dry in palladium could see a 1-million ounce deficit in platinum,” he said, adding platinum prices could break above $1,000/oz by 2020 and driving up to $1,700/oz in 2021 and $2,000/oz three years later.
Platinum is trading at about $919/oz.
The council, which will lose its biggest member, Sibanye-Stillwater, at the end of 2019 because of differences over the best way to grow demand for platinum and other platinum group metals, is mandated to drive investment and information about platinum.
While it is difficult to measure the impact the council’s work has had on investment fundamentals, Trevor Raymond, research director, said the composition of the top 10 funds holding platinum as investments now included groups visited by the council and which had not been interested in the metal in the past.