The world faces a significant platinum supply shortfall due to record industrial demand.
According to a report by the World Platinum Investment Council (WPIC), the platinum market faces a 1.07-million-ounce deficit in 2023. The supply shortfall is expected to extend into 2024.
With two years of significant market deficits, we will likely see upper pressure on platinum prices.
Platinum is one of the rarest metals in the world. Only 0.005 ppm (parts per million) can be found on the Earth. That compares to gold at 0.004 ppm and silver at 0.075 ppm.
In its third-quarter report, the WPIC raised its forecast 2023 deficit by 66 million ounces from its Q2 estimate. This reflects a 3% decline in total supply and a 26% increase in demand versus 2022.
The WPIC projects industrial demand will grow by 317,000 ounces in 2023, totaling 2.652 million ounces. That represents a 14% year-on-year increase and would be the biggest offtake on record.
Demand in the green energy sector is driving the increase and straining platinum supplies. Wind turbine producers use platinum-based glass fibers to minimize the weight of rotor blades, making them more efficient.
WPIC head of research Edward Sterck told Kitco News, “We are seeing more and more uses for glass fibers that will continue to drive industrial demand. The green energy transition is expected to provide long-term support for platinum.”
The automotive industry also uses platinum, specifically as a component in catalytic converters. The WPIC said it expects automotive demand to rise to a six-year high of 3.262 million ounces, an increase of 14% year on year.
The WPIC also projects stronger investment demand for platinum with an increase to 305,000 ounces this year That would represent a 36% jump from 2022.
The only demand downside for the metal is in the jewelry market with a projected 3% decline this year.
On the supply side, the WPIC forecasts mine output will remain flat. Mine supply is down 8% from the pre-Covid five-year average.
Sterk told Kitco News that the preliminary estimates for 2024 point to a continued supply and demand imbalance. The WPIC forecasts a 353,000-ounce deficit in 2024. Weak supply growth simply can’t keep pace with strong, growing demand.
The WPIC is factoring in a recession in 2024. This will dampen industrial demand, but Sterk said government programs will continue to support the green energy sector and provide support for demand even with an economic downturn.
Sterk said investors have been sitting on the sidelines and may well miss the first big leg up in the price of platinum.
Right now, investors are sitting here just waiting. They want to commit themselves, but they need to see some kind of trigger that gets them into the market, and I think that will be higher prices. At this point, investors are almost prepared to miss the beginning of that move in order to have confidence in the future trajectory. The message in today’s report is that with two years of market deficits, above-ground stocks have been severely depleted, and we expect the underlying fundamental backdrop should start to reflect in the price.”
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