Platinum prices have experienced a downward trend over the past year, presenting challenges for miners despite persistent supply shortages in the market.
This decline in prices appears counterintuitive, especially considering the significant deficit observed in the global platinum market in 2023, a trend expected to continue into 2024. According to a quarterly report from the World Platinum Investment Council (WPIC), released on Wednesday, the market recorded a deficit of 878,000 ounces in 2023, marking the most significant deficit since WPIC data collection began in 2013.
Despite this deficit, platinum prices have failed to keep pace with the broader commodities sector’s upward trajectory. Demand for platinum surged by 25% year-on-year to reach 8.009 million ounces in 2023. In contrast, supply experienced a 2% decline, dropping to 7.131 million ounces, marking the second-lowest figure since 2013, only surpassed by the COVID-affected year of 2020, as reported by WPIC.
This divergence between supply and demand fundamentals and the metal’s price performance underscores the complexities within the platinum market. Despite persistent supply shortages and growing demand, platinum prices have struggled to reflect these market dynamics, presenting a challenge for miners seeking profitability in this sector.
Supply
The decline in prices for palladium and rhodium has significantly impacted the profitability of platinum group metals (PGM) mining operations, prompting major producers to announce restructuring plans, according to Edward Sterck, director of research at WPIC, speaking to MarketWatch.
Anglo American Platinum Ltd., the world’s largest platinum producer, reported a decrease in total PGM output for 2023, estimating it at 3.806 million ounces compared to 4.024 million ounces in 2022. For the current year, production is expected to range between 3.3 million and 3.7 million ounces.
Sterck noted that WPIC has revised its global platinum mining supply projection for 2024 downwards by more than 250,000 ounces since its previous report in November. In the latest report, total mining supply for 2023 was estimated at 5.636 million ounces, with a forecast of 5.489 million ounces for 2024.
Despite the supply shortage relative to demand, platinum prices have continued to decline, dampening the incentive for PGM miners. This presents a challenging situation for the industry, as lower prices diminish profitability and impact production levels, highlighting the dynamic nature of the platinum market.
Platinum futures, represented by the most-active April contract, experienced a decline of 6.8% in prices throughout the previous year, and they have continued to trade over 8% lower year-to-date, as reported by Dow Jones Market Data. On Thursday, the April platinum contract settled at $923.40 per ounce on Comex.
Supply risks
Sterck highlighted the challenges facing platinum supplies, focusing on both mining and recycling aspects.
He noted that recycling supply has faced increasing constraints over several years, leading to a gradual decrease in output. In 2023, recycling was 25% below the average of the preceding five years. Sterck outlined challenges in recycling, including a scarcity of end-of-life vehicles and regulatory limitations.
While these obstacles may eventually be addressed, Sterck indicated there is an assumption of a 7% rebound in recycling rates for the current year. However, he cautioned that there are uncertainties regarding the timing and extent of this recovery.
Stockpiles
According to WPIC, the supply deficit in platinum hasn’t been able to drive prices higher due to excess PGM inventories accumulated by automakers from 2020 to 2022.
During this period, automakers produced fewer vehicles than planned because of the COVID-19 pandemic, followed by a semiconductor shortage, as noted by Sterck. The management of this inventory reduction has led to reduced purchases by automakers, thus cooling down the market. Sterck mentioned that this process is nearing completion.
In its report, WPIC highlighted that automotive platinum demand increased by 16% to 3.272 million ounces last year, driven by rising vehicle production and a higher share of hybrid vehicles. This trend was accompanied by increased PGM loadings in hybrid vehicles.
Additionally, stricter emissions standards, particularly in China, contributed to demand growth, while the substitution of higher-priced palladium with platinum rose to 669,000 ounces in 2023 from 391,000 ounces in 2022. Palladium settled at $1,042.40 an ounce on Thursday for June delivery.
Looking ahead to 2024, WPIC anticipates a more subdued pace of growth in automotive demand, projecting a 1% year-on-year increase to 3.297 million ounces. Nonetheless, this would represent a seven-year high, according to WPIC.
Higher prices?
Sterck suggests that automakers, who have likely been depleting their platinum stocks, may soon complete this inventory management process. This suggests that tighter supplies will soon drive up platinum prices.
However, Sterck notes that mine supply isn’t expected to increase significantly, meaning that supplies will need to be sourced from above-ground stocks. He highlights that trade flows indicate these above-ground supplies are mainly concentrated in China, and it’s uncertain how accessible they are to the rest of the world.
For the current year, WPIC anticipates a global platinum market deficit of 418,000 ounces, marking the second consecutive year of deficit. However, due to expectations of lower supply and demand, this deficit is projected to be smaller than the previous year.