Greatest supply deficit in platinum

Thu May 09 2024
Ray Pierce (825 articles)
Greatest supply deficit in platinum

 

The platinum group metals market is expected to experience deficits for another year, with platinum projected to have its largest supply shortfall in a decade.

According to a new report by Johnson Matthey, the primary supply of platinum, or the supply directly from producers, is projected to decrease by 2% compared to the previous year, reaching approximately 5.68 million troy ounces. On the other hand, demand is anticipated to remain strong across all sectors.

Despite expectations of a small decline in production of light duty internal combustion engine vehicles, a modest uptick in autocatalyst recycling, and more sales from Russian producer stockpiles, the shortfall in is projected to reach nearly 600,000 ounces.

The anticipated rebound in primary and secondary platinum group metal production did not meet expectations in 2023. This was due to plant maintenance and electricity shortages at South African smelters and refineries, as well as a decrease in the number of end-of-life vehicles being sold for scrap. Rupen Raithatha, Johnson Matthey’s market research director, shared this information with Dow Jones Newswires.

However, the demand from the automotive industry, which utilizes platinum metals to decrease emissions in internal combustion engines, surpassed expectations by a significant margin. It surged by 8% and reached approximately 13.1 million ounces, marking the highest level since 2019.

Meanwhile, although battery electric vehicles have made significant progress in market penetration, the adoption of zero emission cars has been slower than anticipated by analysts.

This year, there is a projected decrease in the automotive demand for platinum group metals due to the growing popularity of electric vehicles. However, the move towards electrification continues to encounter obstacles such as charging, infrastructure, and higher prices for consumers, which helps maintain a significant market for platinum metals in internal combustion engines.

“The trajectory appears to be established, and proposed legislation indicates a shift towards electrification. However, it is important to note that the path ahead may not be as seamless as previously anticipated,” Raithatha remarked.

Industrial consumption of platinum has remained stable at approximately 2.8 million ounces over the past three years, reaching levels similar to historical highs despite challenges posed by geopolitical and economic factors. There has been a notable surge in demand from the Chinese chemicals and glass sectors.

These deficits have not been reflected in price movements, which have generally remained low. Platinum has experienced a 3.2% increase in value over the past week, reaching $985.8 per ounce. However, it is important to note that it has seen a decline of 9.35% over the past year.

Like an economist, all three major South African platinum group metal producers – Sibanye-Stillwater, Anglo American Platinum, and Impala Platinum – have unveiled restructuring programs in light of the current weak prices. However, their focus is mainly on reducing costs and headcount, as well as delaying capital expenditure for replacement and expansion, rather than immediately shutting down existing assets.

According to Johnson Matthey, the impact on platinum group output will be minimal in the short term. However, reductions in capital expenditure will undoubtedly have a negative impact on long-term production capacity.

Additionally, there are significant risks to the outlook. Given the unpredictable political and economic situation in South Africa, there is a significant possibility of disruption to the primary supply. South Africa is responsible for approximately 69% of the world’s supply. There is uncertainty surrounding the recovery in scrap collection, as well as concerns about the impact of battery electric vehicle adoption on internal combustion engine production, according to Raithatha.

Ray Pierce

Ray Pierce

Ray Pierce is a Senior Market Analyst. He has been covering Asian stock markets for many years.