The platinum market’s surplus is expected to widen in 2022 as investment demand continues to weaken on the global macro environment, despite supply of the precious metal tightening, according to a new report from the World Platinum Investment Council.
Weak investment demand in the form of exchange-traded funds as well as liquidation of precious metals stocks is expected to push the platinum market surplus to 974,000 ounces in 2022, up from the previous forecast of 627,000 ounces from the first quarter’s report, WPIC said Monday.
WPIC forecasts a market surplus during the second quarter of this year at 349,000 ounces, up from 130,000 ounces in the first quarter.
Last year, global demand stood at just over 7 million ounces, but this is forecast to fall to 6.5 million ounces in 2022 largely stemming from the weakness on the ETF investment side.
“For ETF holdings, recessionary fears, rising interest rates and weaker commodity prices were visible this quarter – mirroring the net sales trends seen in gold and silver ETFs,” WPIC said. It added that ETF holdings contracted by 89,000 ounces this quarter and are expected to continue to fall in 2022, by a total of 550,000 ounces.
That said, physical demand has been fairly resilient despite the challenges seen from lockdowns and the increasing likelihood of recessions.
Automotive demand hit 708,000 ounces in the second quarter of 2022, down 5% from the previous quarter. WPIC noted that this comes against significant supply-chain challenges in the form of the semiconductor shortage and disruption due to Russia’s invasion of Ukraine and especially the severe lockdowns in China, and was still an 8% rise compared to the second quarter of 2021.
Additionally, over 3 million ounces are expected to be needed in 2022 from the auto sector – above prepandemic levels when 2.87 million ounces were required.
Jewelry demand also improved 5% on year on increased American and European demand, significant given lockdowns are still hampering Chinese buying.
This comes alongside tightening supply from mined sources particularly from South Africa and North America, with WPIC expecting a fall of 8% year-on-year to 7.5 million ounces.
Additionally, the lack of autos being produced and more second-hand cars being purchased has meant that recycled platinum supply fell by 20% year on year.
Anecdotally, WPIC’s director of research Trevor Raymond said on a call that traders had been struggling to purchase platinum on the spot market for physical use, and that lease rates were rising because of this. He added that when the losses in ETF demand are removed the market sits roughly in balance pointing to a much tighter market that first appears.
Concerns had also been raised earlier this year in terms of Russian platinum supply, with worries over how material would move out of the country – Russia accounts for 11% of total primary platinum production. However, those fears have been eased with platinum being moved out via indirect sources, WPIC said.
WPIC noted that Chinese imports were much higher than reported demand, with this mismatch also being seen last year. Raymond suggested that this might be higher platinum loadings in heavy duty vehicles and increased platinum substitution instead of palladium.