Platinum Deficit Could Continue for a Sixth Year, WPIC Says

In 2016, platinum reached its fifth consecutive year of deficit, and it seems that trend will continue in 2017 — supply continues to fall, demand is stabilizing and investors are turning to safe-haven assets amid worldwide uncertainty.
The World Platinum Investment Council (WPIC) is now predicting a platinum deficit of 120,000 ounces in 2017, it says in its recently revised forecast for the year. Last year there was a wider-than-expected deficit of 270,000 ounces.
“The upward revisions of the 2016 deficit and the forecast 2017 deficit, which would be the sixth consecutive annual shortfall, show that the platinum market is tightening amid solid demand and increasingly constrained supply,” WPIC CEO Paul Wilson says in the report.
“We believe that platinum is poised to regain the portion of its value related to its industrial applications and its strong supply/demand fundamentals,” he also notes.

Supply falling

Delving deeper into the factors affecting platinum supply, the WPIC explains that 2014’s five-month strike in South Africa, the world’s top producer, continues to affect the market today. In total, 1 million ounces of the metal were not produced due to the strike, and supply of the metal has still not recovered.

And although that strike is now over, South Africa continues to be a challenging place to operate. Miners continue to be plagued by safety-related stoppages and operational challenges at underground mines in the country, and production has been declining for a decade — it peaked at nearly 6 million ounces back then and this year is expected to shrink to less than 4.2 million ounces this year.
“Future mining supply is constrained as a result of falling capital expenditure and increases in real costs, which have come down by 60 percent a year,” Wilson said at a conference in Africa last month.
According to the WPIC, total platinum supply rose 1 percent to reach 7.97 million ounces in 2016. It is expected to fall by 4 percent in 2017, coming in at 7.66 million ounces.

Healthy demand

On the demand side, automotive production is expected to climb in the coming years, particularly in developing markets. That is expected to ensure healthy demand for platinum and other platinum-group metals into the future.
According to the WPIC, in 2016 car sales volume in the European Union rose to the highest level in nine years and expanded for the third consecutive year. China also experienced growth, with consumers buying vehicles at the fastest pace in three years.
“China is a big part of this story,” Jonathan Butler, a precious metals strategist at Mitsubishi (TSE:8058), said earlier this month. “The level of car ownership is still growing, and there are signs that it could get to western levels.”
The WPIC says that in 2017, automotive sector demand is expected to remain relatively stable, dropping a marginal 15,000 ounces to 3.39 million ounces.

Jewelry and investment demand are also important in the platinum sector, and the WPIC is calling for the former to decline 1 percent, to 2.53 million ounces, this year. The fall will come due to weaker demand in China, which is anticipated to outweigh growing demand in India, North America and Europe. Meanwhile, the WPIC is forecasting that investment demand will drop 50 percent, to 250,000 ounces, in 2017.
All in all, the organization currently sees 2017 platinum demand decreasing by 6 percent, to 7,78 million ounces. However, that forecast could change.
“[I]f investment demand follows the path of previous years, the demand forecast will likely be revised upwards,” Wilson said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.