US-based independent commodities research, consulting and corporate advisory company CPM Group forecasts that the platinum price will continue on a downward trend as a result of decreasing demand, increasing surpluses and no foreseeable future offtaker products to stimulate renewed demand.

This sentiment is stated in CPM Group’s newly released 2016 edition of its yearly ‘Platinum Group Metals Long-Term Outlook’ report – a 300-page study focusing on critical trends in above-ground platinum-group metals (PGMs) inventories, investment demand, mine production, secondary supply and fabrication demand.

CPM Group MD Jeffrey Christian says all these factors are central to understanding the price prospects for PGMs over the next ten years.

“PGM market observers have expressed confusion that platinum and palladium prices have halved over the past few years, while the PGM statistics they use show persistent long-term deficits in these markets,” he explains.

However, Christian states that, in all financial markets, if statistics do not correlate with the price of an asset, the odds are that the statistics are inaccurate rather than the market “mispricing” the asset.

CPM Group’s data shows persistent long-term surpluses over the past several years, which correlate with the decline in prices.

Investors are expected to play the most important role in determining the course of prices, he says, adding that the first several years of the projected period in the CPM Group data are expected to be characterised by continued surpluses for platinum and palladium. These surpluses are larger for platinum than for palladium and are expected to add metal to the already large stocks of above-ground inventories.

Further, at the end of 2016, it was estimated that cumulative above-ground inventories for platinum reached about 13-million ounces, while those for palladium reached 25-million ounces.

Christian explains that when stocks are “at rest”, they have a stagnant impact on price; however, when stocks are “in motion” (being bought or sold), they have a positive or negative impact on price. Most of these inventories are held by investors.

In terms of current offtaking, he says investors are expected to continue absorbing the surpluses of platinum, but warns that the weakness in supply and demand fundamentals is expected to require lower prices for investors to be induced to buy these metals in addition to their already sizeable holdings.

A lack of investment in new and expansion projects for platinum mining, following years of weak prices, coupled with higher operating costs, especially in South Africa, as well as concerns regarding future demand, are expected to weigh on the volume of the metal available for extraction in the future, highlights Christian. In addition, he says mine supply in the near term is expected to be mostly flat.

For platinum mining to be sustainable in the near term and foreseeable future, he adds that miners need to refine their current operations and mine fewer ounces at a more profitable rate. “What is required to achieve this future sustainability plan is enlightened management. Miners need to get into the lower half of the cost curve.

“If the platinum industry starts paying attention to the realities of the market and really starts forcefully slashing its long- term growth expectations for demand while redesigning its mines . . . to be more efficient, then I think the market can turn, and it can do so quickly,” he concludes.