WPIC: Platinum deficit of 983 koz now forecast for 2023 as stronger-than-expected demand growth outstrips constrained supply

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World Platinum Investment Council (WPIC)

May 15, 2023, 01:00 ET

Revised platinum deficit forecast for 2023, up 77% to 983 koz, as demand grows 28% and supply decreases 1% year-on-year
Stronger-than-expected positive investment demand in quarter one sees full-year forecast raised to 433 koz
Industrial demand on track to be the strongest on record, increasing 17% driven by glass capacity expansions in China
Strong platinum automotive demand growth continues in 2023, up 12% on higher loadings and increased substitution

LONDON, May 15, 2023 /PRNewswire/ -- The World Platinum Investment Council – WPIC® – today publishes its Platinum Quarterly for the first quarter of 2023 and a revised forecast for 2023.

Global platinum demand in the first quarter of 2023 jumped 28% (+441 koz) as an upswing in investment demand added to strong demand growth momentum in the automotive and industrial sectors. Combined with lower supply of refined platinum production in the quarter (-8% year-on-year, -96 koz), as well as reduced autocatalyst recycling (-15%, -52 koz) and jewellery recycling (-3%, -3 koz), this led to a market deficit of 392 koz – the first quarterly deficit since Q2'21.

These events have led to a meaningful upward revision of the deficit forecast for full-year 2023 to 983 koz, which is up by 77% versus the figure predicted three months ago. This reflects total supply which is now expected to fall 1% below the weak 2022 level to 7,193 koz (-63 koz), and stronger year-on-year demand growth than originally anticipated of 28% to reach 8,176 koz (+1,775 koz).

Jump in investment demand to over 400 koz

Q1'23 saw a surge in investor interest, driven by heightened global uncertainty, platinum's strong demand growth and concerns about risks to mine supply. Bar and coin investment jumped by 71% year-on-year in Q1'23 to 102 koz (+42 koz), its highest total since Q3'21, propelled by a marked recovery in Japan. This trend is set to continue for the full year, with an increase of 79% (+178 koz) forecast. Meanwhile, net platinum ETF holdings grew by 43 koz in Q1'23, reversing the previous six quarters' of net disinvestment, with significant renewed interest from South African funds for holding platinum ETFs in preference to PGM mining equities. Again, this trend is expected to continue in 2023. The result will mean net investment demand of 433 koz in 2023 – a swing of 1,073 koz on 2022.

Industrial demand in 2023 will be the strongest on record

Industrial platinum demand grew 8% (+43 koz) in Q1'23, driven by growth in chemical demand of 108% (+123 koz) due to paraxylene capacity additions in China. Similarly, on a full-year basis, LCD glass capacity additions in China are expected to offset closures in Japan and result in glass demand for platinum growing by 76% year-on-year (+316 koz) to 730 koz. Together with increases from the medical sector (+3%, +9 koz) and other industrial segment (+4%, +23 koz), 2023 is on track to be a record year for industrial demand, growing by 17% year-on-year (+382 koz) to 2,628 koz.

Platinum automotive demand up strongly despite weak macro outlook

Automotive demand rose 9% (+69 koz) to 806 koz in Q1'23, partly aided by higher vehicle production, but mainly on increased platinum use per vehicle. On a full year basis, global automotive demand is expected to rise by 12% in 2023 to 3,255 koz (+357 koz year-on-year), driven by a number of factors. Firstly, heavy-duty vehicle (HDV) production is forecast to grow by 6% in 2023, with output in China jumping by as much as 26%. Secondly, tighter emissions legislation, particularly in China, will result in higher loadings, especially for HDVs and non-road vehicles. Lastly, growing platinum for palladium substitution in gasoline after-treatment systems will further boost platinum consumption. Significantly, this has meant a further upward revision to the substitution estimate for 2023 to 615 koz.

Total supply continues to struggle in 2023

Refined mine production declined 8% (-96 koz) in Q1'23 year-on-year and fell 11% (-151 koz) against Q4'22, as gains from Russia failed to offset reduced output from South Africa. Output in South Africa declined 14% (-119 koz) year-on-year as smelter maintenance and the impact of the country's ongoing electricity shortages hampered output. While mined platinum supply is forecast to fall by a modest 1% (to 5,511 koz) in 2023, as reductions in South Africa are partially offset by gains in Zimbabwe and North America, significant uncertainties still exist for South African platinum supply.

Global recycling of platinum remained sluggish in the first quarter of 2023, falling 12% (-56 koz) year-on-year to 413 koz, due to reduced volumes of end-of-life vehicles as a result of fewer new vehicles being sold. Meanwhile, the regulatory environment in North America aimed at curbing autocatalyst theft also hindered recycling volumes. With both issues likely to prevail throughout 2023, full year platinum recycling supply is forecast to fall by 1% (-9 koz) to 1,682 koz.

Trevor Raymond, CEO of the World Platinum Investment Council, commented: "From a macro perspective, 2023 presents a raft of both existing and new challenges, with an uncertain economic and interest rate environment, turmoil in the banking sector, inflationary headwinds, and a global energy crisis. Against these challenges, platinum is, counterintuitively, forecast to see a meaningful and sustained period of deficit. Importantly, the core drivers of platinum's expected 28% demand growth in 2023 are areas where the downside risks are well protected. These include the ongoing platinum for palladium substitution in automotive applications, and already committed glass and chemical capacity additions in China, both supported by increasing investment demand.

"In Q1'23 we saw evidence of these core drivers increasing demand, with the deficit exacerbated by a worsening of electricity supply shortages in major producer South Africa. Mine supply concerns, together with strong automotive and industrial demand for platinum, were met by a surge in physical investment demand, all of which have contributed to a widening gap between the supply of, and demand for, platinum. The revised forecast deficit for 2023 of almost 1 million ounces, informed by these Q1'23 developments, is likely to attract further investor interest in bars and coins and physically backed ETFs.

"The link between platinum and the hydrogen economy is of increasing interest and is becoming more widely recognised by investors around the world. Platinum's use in electrolysers producing green hydrogen for Europe's future energy security is bolstering green hydrogen production and enhancing its role in global decarbonisation. Hydrogen-related platinum demand is expected to grow substantially in the medium term; as hydrogen demand becomes meaningful, platinum could become a proxy for investors looking for exposure to the global decarbonisation journey."

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)