Following a relatively calm beginning to the year, the platinum market is gaining fresh traction, witnessing prices rising above $1,000 per ounce once more. Analysts caution that the expanding supply and robust demand will persist in augmenting the growing deficit of this precious metal.
On Monday, the World Platinum Investment Council published its quarterly report on supply and demand trends, revealing a deficit of 369,000 ounces in the platinum market for the first quarter of 2024. Simultaneously, the council has adjusted the anticipated annual deficit to 476,000 ounces, marking an increase from the 85,000-ounce deficit recorded in 2023.
The uptick in the market deficit coincides with the council’s anticipation of a 5% decrease in total demand this year, as exceptionally high industrial demand moderates slightly.
Edward Sterck, Director of Research at the council, stated in an interview with Kitco News that although platinum demand remains robust this year, the deficit is primarily driven by a shortage in supply.
“This year, platinum supply is projected to reach 7.1 million ounces, marking the lowest total supply year in our data series dating back to 2014,” he noted.
Sterck further explained that while total mine supply is expected to decline by 3% this year, recycling is forecasted to increase by 5%, though it remains relatively limited.
“It’s an improvement, but it’s not substantial. We’re still operating at approximately 15% below long-term averages.”
Supply is the driving force in the market, yet demand remains significant
While mine supply will have the most significant impact on platinum this year, Sterk emphasized that investors shouldn’t overlook the robust demand, particularly with the resurgence of interest in jewelry consumption.
In a notable revelation, the WPIC disclosed that global platinum jewelry demand surged by 5% to 486,000 ounces in the first quarter of this year, driven by substantial growth in India and increases across most regions except China.
“The fabrication of platinum jewelry in India witnessed a remarkable increase of 53% to 59 koz, supported by a nine-fold surge in exports to the US and UAE, alongside intensified promotion of men’s jewelry and new store openings,” the report highlighted.
“This marks the first year in our data series, excluding the post-COVID 2021 recovery, where we anticipate an upside in jewelry demand,” Sterk remarked.
Sterk clarified that the resurgence in jewelry demand can be attributed to the efforts of the Platinum Guild International, which sparked renewed interest through a new marketing campaign in India and certain parts of the Middle East.
Although there’s an expectation for an increase in jewelry demand this year, the WPIC anticipates a decline in industrial demand, which was a key driver of last year’s deficit. The analysis suggests that total industrial demand is projected to decrease by 15% this year due to fewer plant commissionings in the chemicals and glass sectors.
However, the report highlighted that industrial platinum fabrication remains 17% higher than the pre-COVID average.
“Sporadic fluctuations in industrial demand are common as they hinge on the timing of new facility constructions; overall, we’re witnessing consistent growth,” Sterk remarked. “There’s a possibility of demand surpassing expectations, particularly in the glass sector, depending on developments in the wind industry.”
Wind turbine blades incorporate fiberglass, which includes platinum alloys.
A notable area of growth within the industrial platinum sector is the green hydrogen economy. For the first time, the WPIC has distinguished hydrogen demand as a separate category in its report.
According to the report, platinum consumption in the hydrogen market is expected to reach 75,000 ounces this year, marking a 128% increase from the previous year. The WPIC foresees that by 2030, the hydrogen market will require nearly a million ounces of platinum annually.
Sterk likened this trend to the impact of photovoltaics on silver demand, noting a substantial increase in government subsidies from $50 billion to over $300 billion within two years, indicating a significant inflow of funds into the market.
Despite solid industrial demand, the automotive sector remains platinum’s primary market. Automotive demand for platinum surged to 832,000 ounces in the first quarter, reaching a seven-year peak.
Platinum plays a crucial role in automotive catalytic converters, responsible for mitigating harmful emissions from gasoline and diesel engines. Approximately 80% of platinum demand originates from the automotive industry.
The report predicts a 2% to 3.269 million ounce growth in automotive demand for the year.
Sterk observed a growing investor interest in platinum, as the complete replacement of traditional internal combustion engines by electric vehicles seems increasingly unlikely by 2030.
He noted that consumers are favoring hybrid models over fully electric vehicles, as the former utilize more platinum due to their engines operating at lower temperatures.
Although industrial demand remains stable and attracts investor attention, Sterk remarked that demand remains subdued.
In the first quarter, global bar and coin investment decreased to 64,000 ounces, primarily due to significant declines in Japan and North America offsetting gains in Europe and China.
However, the council anticipates positive investment demand for the second consecutive year, projecting an increase to 99,000 ounces.
The analysts stated, “In North America, bar and coin demand remains higher than pre-pandemic levels and is expected to continue throughout the year. China’s retail platinum investment is expected to grow by double digits to 60,000 ounces, driven by the perception of platinum being undervalued compared to gold. European investment is likely to remain stable due to high interest rates.” They added, “Meanwhile, platinum ETF holdings are projected to decrease by 120,000 ounces to 2,946,000 ounces, as high interest rates continue to discourage investment in non-yielding assets.”
