For our 2016 platinum outlook, please see: Platinum Price Forecast 2016: Market to Balance.
2014 has been a lackluster year for platinum, to say the least. A protracted strike in South Africa and strong auto sales did little to raise prices, and when the strike ended, the white metal surprised by dropping even lower during the second half of the year, coming it at around $1184 per ounce on Monday.
Above-ground platinum stockpiles have been pegged as one culprit for the persistent pressure on prices, and while the newly formed World Platinum Investment Council recently released a report that estimated above-ground stocks of 2.56 million ounces for 2014, there’s still some uncertainty as to just how much is left and how that supply will affect prices. Still some analysts are expecting prices to pick up next year.
Looking back at 2014, Sergey Raevskiy of SP Angel said it was a “[d]isappointing year for platinum producers overall,” with falling prices continuing to test miners’ margins. “We forecast a different price response to the 4th consecutive annual deficit in the platinum market this year,” he said, noting that the firm expected prices to hold at levels seen in the first half of the year and to average closer to US$1,550 for 2014.
South Africa produces roughly 70 percent of the world’s platinum, so a five month strike at operations run by Anglo American Platinum (LSE:AAL), Impala Platinum (JSE:IMP) and Lonmin (LSE:LMI) in the country caused a significant drop in supply that was expected to have more of an effect on prices than it did.
Explaining the difference between what was predicted and what happened, Raevskiy said that the firm underestimated above ground stockpiles that accumulated before the strike. Stockpiles helped put a cap on prices despite the labour action, then drove them downward when the dispute was resolved over the summer.
ScotiaMocatta’s 2015 PGM forecast echoed that sentiment, suggesting that strong auto sales and the intense strike “could have sent prices spiraling higher.” However, the firm added that downward pressure on gold might have also contributed to platinum’s struggles.
That said, platinum demand still grew 4.9 percent last year thanks to the metal having a more “diverse consumer base” than gold – it’s used in the auto industry as well as in the chemical, electronics, glass petroleum and medical industries.
Prices to pick up in 2015
Another key event noted by Raevskiy was the introduction of tighter emissions restrictions in the European Union. The analyst suggested that change could lead to increased platinum demand next year, since the metal is key in helping to reduce pollution from vehicles.
“Given that the EU is the largest market for platinum based autocatalysts with light duty diesel vehicles accounting for majority of demand in the segment, we believe this will provide strong growth momentum next year, which is likely to compensate for potentially weaker auto sales in the Eurozone,” he said.
Similarly, ScotiaMocatta expected platinum demand to stay strong in 2015, suggesting that it could pick up even more if industrial users decided to take advantage of weak prices to restock supplies. The firm also saw a “robust” outlook for platinum jewelry demand.
On the supply side, ScotiaMocatta expected South African Production to recover in 2015, but warned that a disruption in supply due to increased sanctions on Russia – the world’s second largest producer – would be “a very significant event.” The firm expected supply to remain steady from North America, while Zimbabwe, the world’s third largest producer, will be closely watched as it attempts to expand production. The country is working with Russia to develop its Darwendale Platinum project, slated for an eventual capacity of 600,000 ounces of platinum per year and an annual production target of 250,000 ounces within three years.
Overall, ScotiaMocatta seemed to be cautiously optimistic with regards to the platinum space. “2015 looks set to be a quieter year; the PGMs face supply deficits, but slower economic growth is likely to dampen sentiment,” the firm said.
However, while suggesting that a further drop in the gold price could also drag Platinum lower, Scotia saw such a scenario as unsustainable. It predicted that platinum would rebound due to bargain hunting to spend most of 2015 in the $1,200 to $1,500 per ounce range.
SP Angel’s prediction was similarly positive – Raevskiy expected platinum prices to average US$1,500 per ounce for 2015.
“Overall we remain bullish on the PGM complex, including platinum,”the analyst said, ”with prices expected to pick up due to another annual market deficit driven by buoyant demand from the auto sector.”
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.