Global platinum demand is expected to increase by 5% to 7.7-million ounces this year, owing to a significant increase in investment demand, which should offset weaker demand in the automotive, jewellery and industrial segments, the World Platinum Investment Council (WPIC) said on Wednesday.

In its latest ‘Platinum Quarterly’ report, the council pointed out, however, that supply would also likely increase by 5% this year, widening the market surplus, from 645 000 oz in 2018, to 680 000 oz.

Global refined production is forecast to grow by 6% to 6.4-million ounces in 2019. The majority of this supply increase is a one-off boost from work-in-progress pipeline build-ups in 2018.

Around 90 000 oz of the supply growth will be the result of organic growth.  

Refined production from South Africa will lift temporarily to 4.7-millon ounces, as the country’s mines process work-in-progress stocks.

Expansion at a mine in the US should lift North American supply by 50 000 oz to 410 000 oz, while output from Zimbabwe and Russia should remain stable at 470 000 oz and 675 000 oz, respectively.

Recycled platinum supply is expected to rise by 3% to 1.9-million ounces this year on the back of an acceleration in European autocatalyst recycling, but with slower growth in the US.

Meanwhile, the WPIC expects total investment demand this year to reach about 530 000 oz, with strong growth in exchange-traded fund (ETF) holdings, combined with another year of strong bar and coin demand.

The organisation noted that the reduction in ETF holdings in 2018 has started reversing, with investors across western markets and South Africa “rapidly” increasing their holdings in the first few weeks of this year.

The WPIC expects chemical demand to increase by 35 000 oz, which will offset declines in the glass and other industrial segments. As a result, overall industrial demand will just fall short of 2018’s high, at 1.8-million ounces.

The decline in jewellery demand should slow, dropping just 1% to 2.3-million ounces, owing to an easing of the decline in Chinese demand and growth in other regions.

Automotive demand is projected to fall at a far slower rate than in 2018, declining 3% year-on-year to three-million ounces in 2019, compared with a 7% decline in 2018.

The WPIC said the smaller decline is partly attributable to a stabilisation of demand in light-duty diesel autocatalysts in India.

The WPIC said three factors could strengthen platinum’s investment case this year.

The first is the potential disruption of South African mining output owing to power supply disruption and industrial action, which could reduce supply.

Secondly, recovering Western Europe diesel market share may increase automotive demand; and, thirdly, the significant increase in the palladium price might spur future demand growth for platinum, as the likely replacement for palladium in gasoline autocatalysts.

WPIC researcher Trevor Raymond explained to Mining Weekly Online that while the three factors would likely materially impact supply and demand this year, they had not been factored into the quantities published in the WPIC's 2019 forecast.

Raymond pointed out that South Africa had produced 4.4-million ounces of platinum in 2018 and about 4.3-million ounces in 2017. He added that, aside from the one-off release of material, production should remain relatively stable, as local miners have adjusted to the low price environment and overall efficiencies have improved.

While he could not comment on the perceived higher risk of industrial action in the mining sector in South Africa, he did note that any protracted action would significantly adversely impact on supply.
 
With regard to the increased diesel market share in Western Europe and the slowing rate of decline in automotive platinum demand, Raymond said that, while autocatyst demand is expected to decline by 3% this year, recent developments in Germany relating to bans on diesel vehicles in cities, as well as an independent index to measure vehicle emissions in the UK, may have an impact on diesel vehicle demand going forward.

In Germany, the government has prepared legislation that would forbid diesel vehicle bans as a solution for cities who have exceeded the air pollution limits to a minor extent.

The European Union (EU) recognised that the legislative change was in line with EU law, because while the pollution limits stipulated by the EU are binding, members have discretion in deciding how to stay within those limits.

In a recent article, Forbes noted that, “under the change such bans could not be implemented in Frankfurt, Berlin or Hanover because those cities do not exceed the EU air pollution limits by more than ten micrograms.

Raymond explained that, because of this, many diesel vehicle owners will not have to worry about whether they will be able to travel to certain cities in Germany, and the concern about the resale value for diesel vehicles in Germany might lessen.

In terms of palladium substitution, Raymond explained that while reports that the substitution is unlikely to occur within the next 18 to 20 months, a manufacturer would not necessarily make the substitution public, thereby relinquishing a competitive advantage, and potentially increasing the platinum price.

Additionally, there is a palladium deficit and the two main producers of palladium – Russia and South Africa – are not materially increasing their respective nickel and platinum production, which means palladium supply is likely to remain stable.

Raymond said investment demand of 530 000 oz would be split roughly 50:50 between ETF and coin and bar demand.

2018 PERFORMANCE
Total platinum supply fell marginally to eight-million ounces in 2018, owing to lower mining supply and a modest increase in recycled platinum.

Refined production declined by 1% to six-million ounces, with notable decreases in Zimbabwe and Russia. South African production rose 1% year-on-year as a result of a low level of disruptions.

Platinum demand contracted by 5% to 7.3-million ounces, which resulted in a surplus of 645 000 oz.

Low levels of demand were attributed to declines in jewellery, automotive and investment demand, which outweighed improved industrial demand.