Mining Weekly

The World Platinum Investment Council (WPIC) has published its Platinum Quarterly for the fourth quarter of 2022, full year 2022, and a revised forecast for 2023.

After two years of significant surpluses, the platinum market is forecast to move to a material deficit in 2023. The change from the 776 000 oz surplus in 2022 to the forecast deficit of 556 000 oz in 2023 is over 1.3-million ounces. This reflects total supply remaining close to the weak level in 2022, up only 3% to 7 428 000 oz and strong demand growth of 24% to 7 985 000 oz.

“The main driver really for the deficit projected for this year is a combination of very muted growth in supply, principally due to the power challenges facing South Africa, as well as some of the sanctions against Russia, which are creating operating challenges there.

“In combination with that is an extremely robust outlook in terms of growth. Supply in aggregate – mining plus recycling supply – is only expected to grow by around 3%, whereas we’re projecting demand growth at 24% year-on-year, which is particularly strong,” WPIC director of research Ed Sterck told Engineering News & Mining Weekly in a Zoom interview.

Engineering News & Mining Weekly: The Platinum Quarterly reports that investment demand will improve by more than 900 000 oz this year. On what is the improved investment forecast based?

Sterck: It’s a combination of things. Partially it’s because we saw net disinvestment in 2022 and that was on what was pretty robust bar and coin demand, more than offset by exchange-traded fund (ETF) disinvestment. We saw in total from the middle of 2021 to late 2022 almost 900 000 oz of platinum come out in the platinum ETFs globally. We also saw some significant exchange stock outflows of almost half a million ounces in that same time period, so total disinvestment from financial assets getting on for one-and-a-half million ounces. It’s important to just unpack that a little bit and try and understand what was driving the disinvestment. In terms of ETFs, it’s partially macro asset allocation decisions.

ETFs are a non-yielding asset. We’ve seen rising real interest rates and so there’s been a hunt for yield amongst investors, which ETFs don’t really supply, and so that’s been a factor behind some of that disinvestment. But added to that, the platinum forward and futures markets were in backwardation for much of that period. If you are an asset class agnostic investor – admittedly most investors aren’t asset class agnostic – but if you do have that flexibility, then you can move your platinum exposure in the ETF, where you’re typically paying half a percent a year for that ETF exposure, into the forward and futures market, when because of the mechanics around it being in backwardation, you’re effectively being paid to hold that position. That was also probably a factor behind the ETF disposals.

In terms of the exchange stocks, that’s largely a function of the platinum market, having the platinum yield being at pretty elevated levels throughout most of the time period we’re talking about. So, again, rather than holding platinum on exchange, where you’re not attracting any income on those platinum holdings, you can wean them off exchange and potentially lend out those platinum ounces and benefit from the high yield rates. That was behind the exchange stock outflows.

Looking into 2023, the platinum market is back in contango. If you look at the economic outlook, we do see continued real interest rate rises but at a slowing pace, and then possibly reversing later this year. In terms of exchange stock outflows, yield rates have fallen somewhat, but they do still remain elevated. Fundamentally, and possibly more importantly, in terms of the minimum levels that exchange stocks can reach, they’re back to their pre-Covid average historical levels and for the ongoing functioning of the exchanges, it seems unlikely that they can be allowed to fall too much further.

Coming back to the question of the 1.3-million-ounce swing in investment ounces between 2022 and 2023, a big factor is we think that the ETF disposals are likely to be significantly reduced, exchange stock outflows have pretty much run their course, and at the same time we’re expecting strong bar and coin demand at around from 150 000 oz for 2023, so a big improvement in net investment numbers.

Increased platinum for palladium substitution and higher loadings are expected to lift automotive demand by 10% in 2023. How much palladium substitution is expected and what is the latest on emissions legislation and higher platinum loadings?

Platinum substitution is a big, important driver. I’d argue that the platinum substitution for palladium in gasoline vehicles is a bigger factor in the outlook for platinum demand from the automotive industry in 2023 than vehicle production numbers. In terms of the level of substitution we’re talking about for this year, it’s moving up from around 440 000 oz last year to almost 550 000 oz in 2023, so quite a big increase in terms of substitution numbers, and that’s primarily in gasoline vehicles.

You’ve also got higher loadings. That’s largely in the heavy-duty segment, and it’s due to the final implementation of the China 6 legislation. In terms of vehicle production numbers for internal combustion engines (ICE), we’re actually expecting a small decrease in ICE production year-on-year, so the increase in platinum demand is really on those substitutions and higher loadings. If we look beyond just this year, that platinum substitution for palladium trend is expected to continue. So, for as long as there’s that ongoing price differential between platinum and palladium, there’s an economic incentive there for the automakers to continue to make that switch – and remember that this substitution is occurring on new models.

As new models are developed, it’s pretty easy to make changes to the balance between the different platinum group metals (PGMs) in the exhaust treatment system. Once that new model is launched, it’s typically locked in for the seven-year life of that model. Any substitution that’s occurring now is going to be a factor for a number of years to come. In terms of the emissions standards and what we can expect in the future, there’s a lot of talk around Euro 7 coming in at some point later this decade, and what that might mean in terms of higher PGM requirements for the exhaust treatment systems. That’s still being worked out, but there’s certainly a fair amount of opposition that’s been publicly spoken about in the press to bringing in some of those measures. The European Commission has also left itself scope to manoeuvre on that, and indeed, even the ability to postpone implementation of those tighter emission standards, or to soften them.

Industrial demand in 2023 is set to increase 12% year-on-year, almost matching its strongest year on record. What are the main drivers of industrial demand and is this level of demand sustainable? That’s a good question. Industrial demand is a little bit different to the other end demand segments in that whilst there is ongoing consumption of platinum, there’s a lot of internal recycling. The year-to-year incremental demand requirements are typically pretty small in an ongoing operation, simply replacing the losses that occurred during the manufacturing process of the various different products that use platinum in their manufacturing methodologies. The big drivers on a year-to-year basis in terms of platinum demand are capacity additions. That’s when a new plant is constructed. It is populated with the platinum required in order to operate and then, on an ongoing basis, it’s only really the losses that are replaced. It just happens that in 2023, we’re expecting some fairly substantial capacity additions, in particular in the glass sector. Supply Outlook

Supply is forecast to remain broadly flat in 2023, with refined mine production in 2022 also down 11% year-on-year at –718 000 oz, owing almost entirely to lower output from South Africa.

South African output declined 24% in the last quarter of 2022 and Russian production by 10% year-on-year and 2022’s global recycling was 17% down on reduced availability of end-of-life vehicles and lower jewellery recycling.

Autocatalyst recycling declined as a result of new vehicles’ low availability, meaning cars are being driven for longer.