The World Platinum Investment Association (WPIC) today released its 25th issue, the Third Quarter 2020 Platinum Quarterly, which also includes its first forecast for 2021.
Despite a strong quarter-on-quarter recovery in mine and recovery supply, a sharp rebound in auto demand and continued strong investment demand for precious metals, including platinum, boosted demand for platinum in the third quarter of 2020, far outstripping supply, resulting in a shortfall of -22 tonnes this quarter. Supply shortages are now expected to be slightly more than 37 tonnes in 2020, with a shortfall of -7 tonnes forecast for 2021 for the first time.
Overall, with global economic conditions improving from the first half of 2020, most markets in the third quarter of 2020, including both supply and demand, returned to operating levels similar to those before the COVID-19 outbreak.
Total platinum supply in the third quarter of 2020 was down 5% from the same period in 2019; That is a modest drop from the 36 per cent year-on-year decline in the second quarter of 2020. Total mine supply resumed to grow only less than 4% (-2 tonnes) below the level in q3 2019, as miners increased capacity during the quarter. However, total mine supply in 2020 is expected to fall by 21 per cent (-40 tonnes) year on year, of which about -12 tonnes is due to mine shutdowns due to coVID-19, while about -28 tonnes is due to converter plant shutdowns in the first half of the year, combined with similar shutdowns recently announced for the last two months of 2020. The latest shutdown alone will reduce supply by about 11 tons this year.
Platinum investment demand is soaring and will continue to rise
Investment demand increased significantly in the third quarter of 2020, with a year-on-year growth of 291% (+23 tons), among which ETF demand (+10 tons) and platinum bar and coin demand (+1 ton) increased significantly year-on-year. An increase in exchange inventory positions, mainly those held at New York stock Exchange delivery warehouses, also helped to boost investment demand, up 11 tonnes from a year earlier, as market-makers’ Banks continued to raise these inventory levels. Investment demand is expected to grow by 32% (+13 tonnes) in 2020 as precious metals, including platinum, remain an attractive alternative investment, supported by its steep discount to gold. Investment in platinum bars and COINS is expected to grow by a solid 123 percent in 2020, and by historical standards, demand will remain high through 2021.
Auto demand rebounded 70 percent quarter-on-quarter in the third quarter of this year and is expected to grow 24 percent for the whole of 2021
While coVID-19 workplace requirements in factories have affected global capacity, pent-up demand and incentives in Europe and elsewhere have driven up global vehicle production levels. As a result, auto demand for platinum in the third quarter of 2020 was only 3% lower than in the third quarter of 2019. China’s auto industry demand for platinum in the third quarter of 2020 increased by 68% (+1 ton) year on year, as some cities and provinces in China adopted national VI standards for light vehicles ahead of schedule and accelerated compliance with national VI requirements for heavy vehicles.
Global auto industry demand for platinum in 2021 is expected to grow by 24% (+18 tons) as light vehicle production is forecast to increase by 15% and heavy vehicle production by 5% in 2021. Increased platinum-carrying capacity to meet more stringent emission levels will also benefit platinum demand. As a result, platinum will be more likely to be used instead of palladium in gasoline vehicle catalysts, as well as in diesel vehicle reprocessing systems. It is predicted that PDP replacement in gasoline engines will mainly occur in China and North America in 2021. Palladium remains more than $1,000 an ounce above platinum, maintaining high replacement momentum, especially as carmakers’ profits suffer from falling sales.
Platinum jewelry demand in China is forecast to rise for the first time in seven years in 2021
Global demand for platinum jewellery rebounded by 27% quarter-on-quarter in the third quarter of 2020, with 14% (+1 tonne) growth coming from China, as the coVID-19 blockade eased. Looking ahead to 2021, global platinum jewellery demand is expected to grow by 13 per cent (+8 tonnes), with double-digit growth across all regions.
The low price of platinum pushed Chinese jewellers to import large amounts of the metal in the first months of the coVID-19 pandemic. As the Chinese government continues its successful virus containment policy and consumption is expected to continue to improve, platinum jewellery demand is forecast to grow by 13% (+3 tonnes) in 2021 – the first annual increase since 2013.
PaulWilson, CEO of wba commented: “developments in the third quarter, including a v-shaped rebound in the automotive market and a significant reduction in investment demand and supply of precious metals driven by covid-19 risks, point to the latest forecasts of a 37 tonne shortage in 2020 and a 7 tonne shortage in 2021.
“As we look at the economic cost of the outbreak now, platinum can provide an alternative solution. The world faces big questions, such as how quickly we can make the transition from internal combustion engines to electric cars, and the huge sums of money needed to support the infrastructure. Since combating climate change remains a major priority, the focus on reducing the cost of carbon dioxide emissions has convinced 70 countries (plus the European Union and China) that green hydrogen is the best way to achieve decarbonisation. It is time to consider both decarbonisation and hydrogen energy, and we are implementing strategies and policies to ensure that the hydrogen economy grows over the next 15 years.
Platinum plays a key role in the production of green hydrogen and fuel cells for electric cars. The resulting significant increase in demand will be achieved within five to 10 years. But the strategic underpinning of long-term demand for this unique metal has attracted interest from many investors who had not previously considered platinum. As these investors dug in, they found that platinum’s deep discount relative to gold and palladium, as well as the higher cost-effectiveness and low carbon emissions of the power systems of slightly hybrid diesels, greatly enhanced the likelihood of increased investment demand.
Platinum has been slower than most to resolve its deep discount to gold and palladium this year. We believe that one of the reasons for this slow response is the stagnation of the platinum futures market due to the transport restrictions associated with the early stage of the outbreak.
Another indirect consequence of coVID-19 can be seen in the growth projections for Platinum jewelry in China. Chinese jewellers are revisiting the results of buying platinum in 2009, when prices collapsed, to build up their inventories. They built up stocks during the price drop caused by the outbreak in March. Platinum jewelry has since been produced, promoted and sold on the basis of locking in a discount on platinum materials, providing manufacturers and retailers with higher profits than gold jewelry. Demand for platinum jewellery, which has fallen in each of the past seven years, is expected to rise in 2021, which is indeed good news.
This report, the 25th issue of our Platinum Quarterly, represents a milestone in the history of our association. “Our 2014 commitment to providing investors with viable insights is undoubtedly tested in 2020, and we look forward to providing meaningful and valuable insights to all who care about this market over the next 25 issues and beyond.”