Research conducted by New York-based research and consulting firm CPM Group for its Platinum Group Metals Yearbook 2017 concludes that the platinum market remained in a surplus during 2016.

Newly refined platinum supply exceeded fabrication demand by 197 000 oz in 2016. The report states that, with the exception of the “strike-plagued” 2014, the platinum market has been in a large surplus every year since 2001.

The firm says that, up to 2011, investors were aggressively buying the surplus metal in the market, in large part owing to the bull market in commodities. CPM states that a softening of fabrication demand for platinum during and after the period 2007 to 2009, coupled with lacklustre price appreciation, had resulted in investors selling their metal since 2012, adding to the market-ready inventory that was building up from an excess of newly refined supply over fabrication demand.

The report highlights that, the surplus in the platinum market is forecast to continue into 2017. It notes that, while investors may step in as buyers to absorb some of the surplus when prices form at least a temporary base at a low level, they are not expected to bid prices higher to acquire the metal this year.

CPM’s statistics show surpluses in the platinum market which it says logically coincide with and explain platinum price weakness since 2011.

“These surpluses are at variance with the deficits written about by others. Some market participants continue to discuss the incongruity of long-term deficits and prices half of what they were a few years ago almost in the same breath as they speak of how supply ‘has to fall back in line with demand’ for prices to rise, suggesting they are well aware that there are no deficits in the real platinum market – only in marketing materials.”

Further, the firm remarks that total platinum supply declined and fabrication demand increased during 2016. However, it points out that the level of fabrication demand remained lower than total supply during the year. Total supply stood at 7.2-million ounces in 2016, which was down 1.6% on 2015, while total fabrication use of platinum increased to 7.05-million ounces, which was up 0.5% on 2015.

CPM comments that, while demand for platinum was supported in 2016 by increased demand for commercial vehicles, platinum demand has been suffering a variety of headwinds brought on by changing consumer demand trends in the automotive and jewellery markets, as well as technological changes that are “meaningfully” reducing the amount of platinum used in some fabricated products.

On the supply side, there are several issues, with most pertaining to the mining of the metal in South Africa. CPM predicts that mine supply from South Africa is likely to continue declining in 2017, but the pace of decline may be slower than the loss in demand during the year.

The firm moreover highlights that the fundamentals for palladium and rhodium have been more robust, which is reflected in the prices of these metals. While palladium has been rising since 2016 and into 2017, the price of rhodium stopped declining in 2016 and rose during the opening months of 2017.

CPM states that the palladium market has been benefiting primarily as a result of healthy fabrication demand. Total palladium demand during 2016 reached a record 9.35-million ounces, which is an increase of 1.2% from 2015.

Additionally, while total fabrication demand increased to a record high, there were many sectors where palladium demand declined, such as electronics, dental and jewellery. The firm elaborates that the metal’s use in the automotive sector has risen in recent years as demand in primarily petrol engine markets, such as the US and China, has been booming.

“This increase in the automotive industry demand more than offset softness in demand from other applications. Demand from electronics began to show signs of recovering in 2016 and this is expected to continue into 2017, as semiconductor fabricators replenish inventories,” CPM comments.

Further, the report highlights that total palladium fabrication demand is forecast to continue increasing in 2017; however, the rate of growth is expected to slow.

Meanwhile, newly refined palladium supply decreased to 9.3-million ounces in 2016, which was a decline of 1.2% on the previous year. The firm says that a decline in palladium mine production – largely attributable to declines in South Africa and Russia – was mainly responsible for this decrease in total refined metal supplies.

Palladium prices increased strongly over the course of 2016, encouraging the recycling of spent auto catalysts that contain significant loadings of palladium.

The rhodium market was in a deficit in terms of newly refined metal, relative to fabrication demand, for the third consecutive year in 2016. The market was in a deficit of 48 700 oz in 2016, up from a deficit of 37 134 oz in 2015.

CPM explains that a decline in South African mine supply and an uptick in fabrication demand were the primary reasons for the increase in the deficit. It says that the deficit is forecast to shrink in 2017.

Newly refined total rhodium supply was largely flat at 977 000 oz in 2016, compared with an estimated 976 000 oz in the previous year. Weakness in rhodium mine supply was offset by an increase in recovery from secondary supply.

“Total rhodium fabrication demand increased 1.3% in 2016 to a record 1.02-million ounces during the year. The automotive and glass industries were primarily responsible for the rise in rhodium fabrication demand during 2016. Demand for rhodium is forecast to continue rising slightly during 2017,” CPM concludes.