Platinum surplus in 2021 and 2022 as stock unwind boosts supply and muted investment offsets otherwise strong demand

- High supply levels forecast in 2021 and 2022 as processing of semi-finished stock from 2020 boosts otherwise flat mine output

- Despite semiconductor chip shortage, platinum automotive demand forecast up 14% in 2021 and 20% in 2022 on substitution for palladium and tighter emissions legislation

- Bar and coin demand up 25% in Q3'21 and forecast up 10% in 2022 on global risk while ETF holdings and exchange stocks reduce

News provided by

World Platinum Investment Council (WPIC)

Nov 24, 2021, 01:00 ET

LONDON, Nov. 24, 2021 /PRNewswire/ --The World Platinum Investment Council (WPIC) today publishes its Platinum Quarterly for the third quarter of 2021, with a revised forecast for 2021 and first forecast for 2022.

Global platinum demand for the total of automotive, jewellery and industrial applications in Q3'21 continued the positive year-on-year growth trend seen in the previous three quarters, however, negative investment demand and near record refined supply drove the market balance into a surplus of 592 koz this quarter. The forecast for 2021 is now revised to a surplus of 769 koz, while 2022 is forecast to see a surplus of 637 koz.

Supply levels bolstered by unprocessed backlog

Mining supply continued to recover gradually from the COVID-19-related operational disruptions in 2020. In addition, processing of the 560 koz of semi-finished material, built up during last year's Anglo-American Platinum converter plant (ACP) shutdowns, accelerated during Q3'21 and boosted refined supply by around 140 koz. This resulted in total mine supply in the quarter increasing 13% (+185 koz) year-on-year to 1,569 koz. Even with a 9% (-46 koz) decline in global recycling in Q3'21, total supply this quarter was up 7% (+138 koz) year-on-year.

For 2021, total mine supply is expected to reach 6,137 koz, up 25% (+1,231 koz) on 2020, with total supply up by 19% (+1,292 koz) to 8,114 koz. In 2022, total supply is forecast to be almost flat on 2019 at 8,235 koz (+ 1%, +16 koz), despite including the benefit of the final tranche of 2020's semi-finished stock and after allowing for improved operational stability.

Automotive demand set to grow 14% in 2021, and a further 20% in 2022, despite semiconductor chip shortages

Due to the record lead-times in receiving semiconductor chips, automotive manufacturers dramatically revised their production forecasts downwards in Q3'21. Passenger car production is now forecast to be 77m, a mere 3% up on pandemic-impacted 2020, and around 10m fewer vehicles than originally forecast at the start of 2021.

Even in this context, however, automotive platinum demand is expected to grow by 14% (+340 koz) in 2021, supported by both higher platinum loadings in autocatalysts to meet tightening emissions legislation and the substitution of platinum for palladium, which is estimated to be just over 200 koz this year. These trends are set to continue into 2022 when automotive demand is forecast to increase 20% (+533 koz) despite vehicle growth of only 10% to 85m, well down from the original forecast of 93m.

Standout automotive demand increases in 2021 are forecast in North America, which will jump by 31% (+92 koz) driven by significant growth in hybrid and mild hybrid vehicle production, and a strategic focus from producers on SUVs and pick-up trucks over smaller vehicles; and in China where demand will grow by 42% (+118 koz) supported by the implementation of China 6a along with the phase-in of China VIa for heavy-duty vehicles. Platinum substitution for palladium in both regions is also a contributor to these significant gains.

ETF and exchange stock demand falls, while bar and coin demand grows

Investment demand was -246 koz in Q3'21, as exchange warehouse stocks declined by 173 koz and ETF holdings contracted by 195 koz. As seen in the previous quarter, the contraction in ETF holdings was driven by South African funds rotating to platinum mining equities to benefit from healthy dividend yields. Meanwhile, elevated lease rates during the quarter, probably due to strong imports into China, encouraged outflows from NYMEX depositories, which had declined to 541 koz by the end of Q3'21. Global ETF holdings are forecast to contract by 40 koz this year but rise by 50 koz in 2022.

Demand for bar and coin jumped 25% (+24 koz) in Q3'21 to 122 koz, reflecting investor concerns that global risk – including inflation – remains high. Bar and coin investment is expected to reach a robust 365 koz in 2021, albeit at a 38% decline on 2020's extremely high level. Demand in 2022 is expected to rise by 10% to 402 koz, driven predominantly by increased retail investor buying in North America and Japan. While this forecast of 402 koz is below the record of 586 koz in 2020, it is still over 50% higher than the annual average bar and coin demand for the seven years prior to the pandemic.

Industrial demand expected to surge 26% in 2021 with 2022 to be above 2019 level

Industrial demand in Q3'21 was 20% higher (+98 koz) year-on-year, and despite some slowing expected in the final quarter, full-year demand is expected to increase by 26% (+514 koz) on 2020. This growth is driven by expected surges in petroleum demand of 65% (+71 koz) as economic activity continues to improve, and glass demand of 72% (+303 koz), from new fibreglass and LCD tank capacity installations in China.

While petroleum capacity additions in 2022 will increase platinum demand, platinum's use in glass fabrication will be over 50% lower as the significant capacity expansions in 2020 and 2021 are not repeated, as to be expected following large scale capacity additions. Despite this dramatic reduction, platinum industrial demand overall will remain above the 2019 level.

Paul Wilson, CEO of the World Platinum Investment Council commented:

"The global economy continues to recover with the IMF projecting a growth rate of 5.9% in 2021, with platinum poised to benefit as a result. Residual pandemic effects, such as the semiconductor shortages, will continue to inhibit platinum demand in 2021 and 2022, both of which would otherwise be far higher. 2022 will be a crucial year in which the dust from 2020 settles and the remaining portion of the semi-processed material built up in 2020 is released. The speed at which demand inhibitors get resolved will have a major impact on the platinum market balance and we could see a fascinating outcome in 2023.

"For investors, platinum continues to offer an alternative investment during this extended period of heightened global risk. The 25% jump in demand for bar and coin this quarter is a reflection of investors acting on heightened risk, and this looks set to continue next year. Similarly, the switching seen by various funds from ETFs to mining equities is not a loss of faith in the asset class, but rather a reflection of how investors are currently securing returns. Set against the backdrop of a change in investment demand of over a million ounces within a year, the investment demand forecast for 2022 is understandably conservative, at 302 koz.

"As highlighted at COP26, world leaders are increasingly convinced of the importance of the role of green hydrogen as part of the best route to decarbonisation. Because platinum is used in both electrolysers to produce green hydrogen and in hydrogen fuel cells, which can power fuel cell electric vehicles, it has a key strategic role in unlocking hydrogen's crucial contribution to achieving global net zero targets."

Disclaimer

Neither the World Platinum Investment Council nor Metals Focus is authorised by any regulatory authority to give investment advice. Nothing within this document is intended or should be construed as investment advice or offering to sell or advising to buy any securities or financial instruments and appropriate professional advice should always be sought before making any investment. For further information, please visit www.platinuminvestment.com

SOURCE World Platinum Investment Council (WPIC)