For the third consecutive quarter, platinum remained in a deficit, at 170 000 oz, in the fourth quarter of 2020 as strong demand in the automotive, industrial and jewellery sectors and sustained strong investment demand for platinum outstripped constrained supply, the World Platinum Investment Council (WPIC) says in its latest 'Platinum Quarterly'.
The quarterly review includes a revised forecast for this year, in which WPIC research director Trevor Raymond explains that, while industrial demand is now expected to increase by about 10% and jewellery demand by about 13%, automotive demand is likely to increase by 25%.
“The surprise is that, although automotive sales haven’t quite returned to pre-pandemic levels, we’re getting a significant increase in automotive demand mainly as a result of increased sales of, particularly, heavy-duty vehicles in China but also much higher loadings to meet tighter emissions standards across China and Europe,” he tells Mining Weekly.
This is evidence of a strong recovery, Raymond adds, noting that investment demand, on the other hand, is not expected to be nearing 2020 demand levels, but still likely see over 750 000 oz of investment demand this year. This is higher than the five-year average.
However, in response to questions posed by Mining Weekly on what has changed over the last few months, Raymond highlights platinum’s “very strong” correlation to the price of gold, as well as an “extremely deep” discount to gold.
As the global risk increased at the start of 2020, owing to the Covid-19 pandemic, there was a rush into investing in gold as investors were looking for a diversifier and hard assets. This led to investors buying platinum.
In the US, for example, bars and coins completely sold out by about April, with stocks only returning later in the year.
“Bar and coin demand would have been higher in 2020 had the stocks not run out,” he comments.
November, however, brought on a disconnect between the correlation and discount to gold disconnected, and the platinum price increased strongly, while the gold price was falling. This continued until early this year.
“We haven’t seen that kind of sustained divergence since the financial crisis in 2008.”
Overall, however, despite a year that saw the global economy contracting by 3.5%, the platinum market deficit in 2020 was 932 000 oz, the largest on record. While total demand declined by 7%, the sharp decline of mining supply of 20% and the fall in recycling of 10% contributed to total supply being down 17%.
Against a backdrop of widespread vaccine programmes seeing economies return towards normal activity, platinum demand is forecast to increase by 3%, or 254 000 oz, to 7.9-million ounces, while supply will recover by 17%, resulting in a deficit of 60 000 oz in 2021, the third consecutive yearly deficit.
Demand growth this year is expected to be driven predominantly by strong recoveries in automotive, jewellery and industrial demand, offsetting reduced, but strong, investment demand.
Platinum automotive demand in the fourth quarter of 2020 grew by 5% (31 000 oz) year-on-year owing to a healthy recovery in light-duty and heavy-duty vehicle production.
North America, in particular, saw platinum demand increase by 17% (13 000 oz), including strong growth in light-duty diesel vehicles, helping to offset declines in other parts of the world.
Heavy-duty vehicle production meanwhile increased by 7% globally and was spearheaded by China increasing by 21%. Heavier platinum group metals- (PGMs-) loaded catalysts contributed to a 51% increase in platinum demand from this region.
Light-duty vehicle production is expected to recover this year, reaching levels just below those seen in 2019. Despite this slight shortfall, the WPIC says there is expected to be a 25% increase in automotive platinum demand, mainly owing to higher vehicle production, increased loadings to meet tighter emissions regulations and substitution of platinum for palladium in gasoline after-treatment systems.
Commenting on this, Raymond says a “very strong growth” and “large proliferation of diesel vehicles” and hybrid vehicles can be seen over the last twelve months, with a further increase in sales expected this year, depending on how the Covid-19 impact on vehicle sales unravels.
Platinum investment in the fourth quarter of 2020 was 63% higher than the year before, despite being 86% lower than the prior quarter, which was the highest quarterly total on record.
Bar and coin net purchases more than doubled year-on-year, growing by 112%, while exchange-traded fund (ETF) holdings added 74 000 oz during the quarter, up 56% on the prior year.
Investors, the WPIC says, continue to be “very interested” in platinum and its key roles in the hydrogen economy.
Raymond says, however, that the “big surprise” was that 2020 had 586 000 oz of bar and coin demand, despite some investors wanting to “ignore ETFs”.
“The attitude towards bar and coin is definitely that it’s likely to be a continued portion of demand going forward,” he adds.
ETFs, however, are expected to attract more investors – particularly in North America.
While platinum investment, in bars and coins, as well as ETFs, is expected to remain strong this year, the WPIC warns that it may not exceed the exceptional level seen in 2020.
Platinum bar and coin demand is forecast to be 15% lower year-on-year, but still remain elevated. Overall, global net ETF investment holdings are expected to increase by 250 000 oz.
In jewellery, meanwhile, a strong recovery is under way as fabrication turned positive in the fourth quarter, seeing an increase of 7%, with notable increases in demand in North America and China, with improvements expected as economic life returns and the worst of the Covid-19 pandemic passes.
WPIC CEO Paul Wilson, meanwhile, comments in a separate statement that while the world “became accustomed to the term ‘record level’” in what was seen and read, platinum’s record yearly deficit and record investment demand in 2020 highlight “platinum’s previous attraction as a hard asset during periods of high global risk” owing to its deep discount to gold and palladium, and owing to its significant short- and long-term demand growth potential.
“Having endured the dark days of the pandemic and global economic slowdown, we are now considering the possibility of the world returning to normal. The positive momentum in economic recovery of the latter part of 2020 is exhibited in the fact that activity has restarted, and platinum demand has rebounded in the automotive, industrial and jewelry sectors.”
However, as the world re-emerges from the pandemic, the WPIC urges industry players to “consider the role platinum has to play in global decarbonisation”.
“Platinum is key to the production of green hydrogen and in fuel cells for electric vehicles, and this understanding among investors is rapidly increasing. As hydrogen availability rises and its production cost falls, due to accelerated global investment in decarbonisation, fuel cell vehicles are likely to require over a million more ounces of platinum per year within ten years,” Wilson comments.
In addition, platinum’s rapidly accelerating substitution for palladium in autocatalysts will require over a million more ounces of platinum per year within four years.
“The combination of this substantive demand growth, combined with the rally in recent months, could well drive increased investment demand, for investors with both short- and long-term investment horizons,” he says.
Additionally, both Raymond and Wilson note that the industry continues to see an increase in the number of investors, who had not previously considered platinum, attracted by the strategic underpins to demand for the metal.
“When these investors take a closer look, they see that platinum’s deep discount to gold and palladium and compelling demand growth potential greatly enhance the likelihood of investment demand growth,” Wilson says.