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Platinum Facing Big 2023 Deficit on Rising Demand and Constrained Supply
May. 18, 2023 01:55PM PST
The World Platinum Investment Council has upped its 2023 platinum deficit forecast by 77 percent — it now foresees a shortfall of nearly 1 million ounces.
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The platinum market slid into deficit in Q1 for the first time since 2021's second quarter.
In its latest report, the World Platinum Investment Council (WPIC) ascribes the 392,000 ounce Q1 deficit to strong demand and supply limitations, saying that it's now calling for a 2023 deficit of 938,000 ounces, up 77 percent from its previous projection.
In a conversation with the Investing News Network (INN), Edward Sterck, director of research at WPIC, shared details about the sectors driving platinum demand and what factors are weighing on supply for the precious metal.
What industries are driving platinum demand?
As mentioned, the report from the WPIC indicates that platinum demand is increasing as key industries find their groove again following the widespread effects of the global COVID-19 pandemic.
“This is a demand-led deficit," Sterck told INN. "We've got a 28 percent year-on-year increase in demand (projected for 2023), and the two big drivers of that increase are the automotive sector and the industrial space."
Demand from the automotive industry, in which platinum plays a key role, is expected to see a particularly large uptick this year, with usage set to rise 12 percent from 2022, Sterck said. That would put it back at levels seen prior to COVID-19.
For its part, industrial demand has been increasing consistently for the last 10 years and is set to reach record levels.
Investors snap up platinum in 2023's first quarter
Looking at the first quarter of 2023, investment demand had a great moment, according to the WPIC.
Sterck told INN this was fueled by exchange-traded fund (ETF) inflows, noting that net platinum ETF holdings rose by 43,000 ounces during the period, changing course after six quarters of outflows.
“While the European and North American funds were still liquidating, those in South Africa have seen substantial growth, as the deterioration in the local operating environment (constrained power supply) for miners, combined with the improved outlook for the metal’s fundamentals, stimulated investor interest,” the WPIC's report states.
All investment measurements tracked by the council — bars, coins, ETFs and exchange stocks — were up in Q1.
What factors are impacting platinum supply?
In terms of mine supply, the WPIC anticipates that it will decrease in 2023, coming in at 5.51 million ounces compared to 5.57 million ounces. That would only be about a 1 percent decline year-on-year, but Sterck told INN that it would be 6 percent below the average annual production seen in the sector since 2013.
The two main factors impacting supply are electricity shortages in South Africa and operational challenges in Russia.
Investor takeaway
Sterck told INN the growing platinum deficit could bring changes in how investors view the market.
“What we could see is if European and North American investors kind of wake up to this deficit a bit more actively, then potentially we could see more demand that might exacerbate the deficit further," he explained.
At the same time, there are noteworthy concerns on the supply side. "On the supply side, I just think there's pretty significant downside risk potential to output from South Africa and Russia," Sterck said.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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