High demand, low supply

The World Platinum Investment Council (WPIC) forecasts a shortfall of 476,000 ounces, compared to the 418,000 ounces originally projected. Although demand remains significantly higher than supply, the World Council expects demand to fall by 5%. Supply is also expected to fall by 1%. Although this is a significantly smaller deficit than last year's 851 thousand ounces, the current forecast represents a full 6% of total demand for this year. A further 12% drop in stocks is forecast, which the WPIC says could mean a prolonged shortage of supply in 2023 and a fall to four-year lows. Recycling of catalysts could increase this year, according to the outlook, which would alleviate problems in the sector, but this increase would likely only offset the decline in production of the metal itself. [1]

Opinions on investment are split

Due to high interest rates, interest in platinum exchange-traded funds is also expected to fall this year, but the forecast could yet be reversed by any decision by central banks on expected rate cuts. In contrast, a continued positive trend in investment in platinum bars and coins is expected, especially in the Chinese market where the prevailing view is that platinum is undervalued compared to gold. [2]

Problems for mines

The reason for the negative supply forecasts is the lack of platinum mines in Africa and Russia. According to DailyInvestor.com, South African mines, which produce palladium and rhodium in addition to platinum, are facing problems such as high mining costs as well as the costs for energy and wages. Adding to this are logistics problems, low metal prices and decisions to restructure mining companies, which are worsening overall operations. In addition to operational and maintenance problems at one of the largest mines, Western sanctions over the war in Ukraine are also affecting Russian production. The WPIC has therefore provided an outlook for a further decline in supply, with a 2% decline in the case of South Africa and a 9% decline for Russia.

Interest in jewellery and vehicles

According to the quarterly report, demand for platinum is mainly supported by the automotive and jewellery industries. For this year, the WPIC forecasts a 2% increase in demand for the metal from the automotive sector. This is due to a slowdown in demand for electric cars that do not have catalytic converters and an increase in heavy-duty and hybrid vehicle production, stricter emission regulations and the switch from palladium to platinum. The automotive industry has increased the use of platinum in production, bringing demand to a seven-year high, mainly due to interest in hybrid vehicles. In addition to automobiles, platinum is also used in the jewellery industry, where demand for jewellery made from the metal increased by 5% in the first quarter of 2024, with the strongest growth in India, where production surged by more than 50% last year, driven by strong growth in exports to the US and the UAE. Cricket has also contributed to the increased interest in men's jewellery. Demand is therefore expected to continue to grow, increasing by 6% globally, with demand in India matching the combined growth in Europe, North America and China.[1]

It has had a turbulent year

The price of platinum has been quite volatile over the past 5 years, with the biggest drop at the beginning of the Covid-19 pandemic when it fell to a price of 635 USD per tonne, surpassing the drop in November 2008 when it was trading at 774 USD per ounce.* On 13 May 2024, the price of a tonne of platinum was already trading at 1,017.3 USD per ounce. However, this is still approximately 20% lower than the price reached during the recent highs of 1,274 USD per ounce.* By comparison, the metal reached an all-time high in March 2008 when it traded at 2,290 USD per ounce.* With the current commodity market situation, it will certainly be interesting to see how the platinum price develops in the coming years.

The price of platinum over the last 5 years (source: Trading Economics) *

Platinum is not the only one

Copper is facing similar challenges that platinum does. The rise of artificial intelligence and automation, electric cars, the transition to energy and a green future have all led to a significant recent demand for the metal of electrification in the form of copper. According to Nasdaq.com, the need for copper to meet the required capacity of the electricity grid will rise to 427 million tonnes by 2050, and the need for copper in electric vehicles will increase to 2.8 million by 2030. However, this comes at a time when supply is lagging due to strikes by copper mine workers in Latin America, the closure of a subsidiary of Canada's First Quantum in Panama, supply disruptions and low financing with difficult permitting processes for new mines. Output is forecast to rise by 4.1 % this year, but concerns remain over long-term supply deficit. [3] High demand and low supply have caused the price of copper futures contracts to rise 42% since the beginning of February, reaching $4.73 per pound as of May 13, 2024, keeping them near their highs of 2022.*

Copper price trends over the last 5 years (source: Trading Economics) *

Olívia Lacenová, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

[1,2,3] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or the current economic environment, which may change. Such statements are not guarantees of future results. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.prnewswire.com/news-releases/2024-platinum-market-deficit-forecast-revised-upwards-to-476-koz-as-weaker-supply-outstripped-by-sustained-automotive-and-industrial-demand-302142526.html