JOHANNESBURG (miningweekly.com) – Global platinum demand and supply will contract by 2% in 2018, the World Platinum Investment Council (WPIC) said in its latest Platinum Quarterly report on Thursday.

Platinum supply is forecast to slip from 8.06-million ounces in 2017 to 7.91-million ounces in 2018, as most mining regions are expected to post lower refined production.

Total mine supply is expected to decline by 3% to 6.02-million ounces, with South Africa’s output seen falling by 50 000 oz, Zimbabwe’s production by 20 000 oz and Russia’s output by 40 000 oz.

At the same time, demand is also expected to fall by 2%, owing to reduced automotive, jewellery and investment demand, which will outweigh the increase in industrial demand.

Automotive demand is forecast to decrease by 6% to 3.13-million ounces, jewellery demand is expected to contract by 1% to 2.45-million ounces, while industrial demand is expected to strengthen by 5% to 1.79-million ounces – its highest level in six years.

WPIC research director Trevor Raymond tells Mining Weekly Online that the decline in automotive demand was expected, given declining diesel vehicle sales, but that the more predominant factor was investors selling out of platinum exchange traded funds (ETFs), owing to the platinum price, and the influence of the gold price on platinum.

“The gold price tends to respond to macro issues, such as geopolitical risks and dollar strength, so gold has been behaving as it always has . . . the point we are raising is that investors in platinum seem to mistrust platinum’s underlying fundamentals causing the platinum price to more closely track the gold price.”

Raymond points to June when the gold price dipped below $1 300/oz and the platinum price mimicked it dipping below $900/oz. Last month, gold dropped below $1 200/oz and platinum followed suit, falling below $800/oz.

He noted that while the platinum price has always had a correlation to the gold price, it seems that many of the investors trading gold, also trade platinum, and that they assume that the platinum price will drop if the gold price is weak. As such, Raymond said, there have been dips in the price that are completely unrelated to fundamentals and developments within the platinum market.

Further, coin and bar investments are doing well, with retail investors reacting to a platinum price, in many cases, below its cost of production.

The market is forecast to be in surplus of 295 000 oz in 2018, with above ground stocks expected to end the year at 2.50-million ounces.

SECOND QUARTER

The second quarter ended in a surplus of 340 000 oz, with total supply of 2.12-million ounces and total demand of 1.78-million ounces reported.

Platinum demand contracted by 8% year-on-year in the second quarter to 1.78-million ounces, with automotive demand down 40 000 oz – a decline that Raymond said was “perhaps less than expected, given the very negative sentiment towards diesel cars”.

Investment demand registered the largest decline, swinging from a positive of 100 000 oz in the second quarter of 2017, to a negative of 55 000 oz in the quarter under review, as outflows from ETFs outweighed solid bar and coin demand.

Commenting on demand from the automotive industry, Raymond said that declining auto sales were “really hurting” manufacturer profits, and that this could encourage them to be clearer on their diesel strategy. This should result in high platinum loadings if manufacturers intend to continue making diesel vehicles and win back the trust of customers and city regulators.

The WPIC also still believes that petrol manufactures will be replacing some of the palladium content in their catalysts with platinum, owing to their concerns about the availability of palladium.

Further, the WPIC has noted a marked positive change in sentiment towards fuel cell electric vehicles, with more investors of the view that they will play a role in the future vehicles mix. Fuel cell and battery vehicles have similar platforms and have both been boosted by recent heavy investment into the battery vehicle market, as well as developments in Asia.

Raymond noted that constrained supply, greater insight into near and medium term demand growth potential, combined with a low and undervalued platinum price, presented an “interesting and attractive” investment case for platinum.