The platinum market is expected to be broadly balanced over the year, with a deficit of 65 000 oz forecast for 2017.

Above-ground stocks are expected to end the year at 1.89-million ounces, which is a 3% decline on 2016 and in excess of 54% down on 2012 levels.

This is according to the World Platinum Investment Council’s (WPIC’s) latest ‘Platinum Quarterly’ report, which was released last week.

The report incorporates analysis of platinum supply and demand in the first quarter of this year, during which time total mine supply was 1.33-million ounces, which equated to a 6.3% year-on-year decline and was the lowest level since the third quarter of 2014.

“[The] report shows that overall platinum supply is projected to fall by 2% year-on-year to 7.33-million ounces in 2017, with both primary and secondary supply expected to decline,” WPIC research director Trevor Raymond told Mining Weekly in a telephone interview ahead of the report’s release.

He noted that recycling was projected to fall by 6% year-on-year to 1.76-million ounces this year. Secondary supply from jewellery recycling was projected to decline by 20% year-on-year, with recycling trends normalising, following unusually large stock flows in China last year.

Raymond remarked that automotive demand for 2016 and 2017 was revised upward by 45 000 oz. He said the revisions reflected higher-than-expected global vehicle sales with increased loadings, while greater scrutiny of emissions was also believed to be limiting moves to thrift platinum loadings.

“Global platinum exchange-traded fund (ETF) holdings increased by 65 000 oz in the first quarter, with increases observed across most regions. ETF assets in the quarter were at their highest level since the fourth quarter of 2015,” the report noted.

Raymond pointed out that bar and coin demand during the first three months of 2017 was supported by the minting of 20 000 one-ounce US American Eagle bullion coins in January, “all of which were sold in just three days”.

The WPIC highlighted that overall platinum investment demand was currently projected to be 250 000 oz this year.

Further, global platinum jewellery demand for the quarter increased 3% year-on-year, which the report said was “buoyed” by increased Chinese retail sales during the quarter. However, it also noted global jewellery demand for 2017 was forecast to decline 1% from 2016, with anticipated declines in China and Japan outweighing gains in India and other regions.

Meanwhile, WPIC CEO Paul Wilson said even investors who had previously been “hurt” by lower platinum prices were, once again, considering the precious metal.
“Today, many are also including supply-demand fundamentals when considering platinum, which is a significant change.”

Wilson highlighted that many investors were once again contemplating why platinum’s industrial premium over gold, which had existed for 80% of the past 40 years, remained relevant and should be restored.

He explained that, on several occasions over the past two years, the WPIC had sought to explain the reasons for the fall in the price of platinum, despite continued deficits in the market.

“We have accounted for this anomaly by pointing to the levels of unpublished vaulted stock sales over the past five years, which have depressed prices, even during periods of significant deficits and a [near-five-month strike by South African platinum employees in 2014].

Poor investment performance in the face of strong supply and demand fundamentals led many investors to exit the asset class in search of securing returns elsewhere,” Wilson commented.

He noted that, of the investors that remained, including many participants with short-term investment horizons, many chose to “completely ignore” supply and demand fundamentals. Instead, they resorted to other valuation methods that they believed would achieve stronger investment returns from platinum in a weak price environment.

Four valuation approaches, which assume perfect price discovery in the platinum market and correlated broadly with price performance, appear to have gained favour during this period.

The first is by discounting investment demand to make the supply-demand balance appear as a surplus and the second is that, by disregarding platinum’s industrial applications, platinum could be viewed solely as a precious metal and valued relative to gold. The third is, by inferring that the potential bankruptcy of a platinum producer would reduce ‘surplus’ supply, its cash cost per ounce became a proxy for the value of platinum; and, the fourth involves applying ‘breakeven pricing’, which is valid in mined commodities, to platinum, notwithstanding the absence of a platinum supply response to a rising price.

WPIC stated that, once one, or all, of these indicators provided investors with a value trade that “worked”, the practice became embedded. Investors and analysts highlighted selected positive aspects of supply or negative aspects of demand to support the direction of the position or recommendation. Commentators and media aligned their views with this cherry-picking practice as it “most accurately” reflected the weak price and directional movements.

“Thankfully, this illogical, yet widespread, approach seems to be losing traction, and fundamental analysis is resuming its critical position in the investment equation,” Wilson asserted.

He said these fundamentals were offering up “many reasons” to consider investing in physical platinum, with retail investors already acting on the perceived opportunities in the market.

Retail investors, particularly private wealth managers, high-net-worth individuals and family offices, many of whom operate under a two- to three-year time horizon, see the return of platinum’s industrial premium as likely within their timeframe and are more interested in the medium-term drivers.

Additionally, Wilson remarked that it was “pleasing” to report that the WPIC’s market development programme continued to grow in the first quarter of 2017, when two significant new initiatives were launched.