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The platinum market is set to surpass 769,000 in 2021 but the market remains well supported – WPIC

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(Kitco News) – It’s been a wild year and quarter for the physical platinum market, and supply and demand uncertainty will be the focus for 2022, according to the World Platinum Investment Council.

On Wednesday the WPIC released its latest supply and demand report for the third quarter. Due to increased inventory processing during the quarter, the report said platinum supply is expected to rise to a surplus of 769,000 ounces. The platinum market is expected to have a surplus of around 637,000 ounces next year.

“It’s been a dramatic quarter for platinum, to say the least. We expected the year to start the year with a small supply deficit and now we’re seeing a massive surplus,” said Trevor Raymond, director of research at WPIC.

The excess supply is due to Anglo-America Platinum increasing production of its platinum supply, which it built through 2020 after its converter plant exploded early last year. The report said total platinum supply increased 7% in the third quarter compared to the same quarter last year.

Although platinum is seeing new surpluses, Raymond said it would not take a significant increase in demand to rebalance and or even bring the market into deficit. He added that there was some evidence that the surplus has been reduced as the WPIC has seen significant inflows into China.

Raymond explained that while platinum went to China, information about the metal’s uses was limited due to pandemic-related issues.

Raymond said analysts speculate that China is importing much more platinum in an attempt to increase the amount of metal used in auto catalytic converters. Platinum is a critical component in catalytic converters used to reduce harmful emissions from gasoline-powered engines.

“Instead of using futures markets, we still see companies in the physical market using it as a source of supply, which is really unusual called.

Raymond added that despite the excess, platinum continues to be well supported. The increased burden in the automotive sector has offset production stoppages due to a microchip shortage, he said.

The report expects automotive demand in North America to increase 92,000 ounces, an increase of 31%.

While automotive demand was a major pillar of strength, investment demand for platinum was mixed. The WPIC expects an outflow of 40,000 ounces in global platinum-backed exchange-traded funds this year. ETFs are expected to shrink 50,000 ounces in 2022.

However, Raymond stated that these outflows were offset by strong demand for physical bars. According to the report, demand for platinum bars rose 24,000 ounces in the third quarter, up 25% year over year.

“Cash and coin investments are projected to hit a robust 365 koz in 2021, albeit at 38% from the extremely high levels of 2020. Demand is projected to grow 10% to 402 koz in 2022, largely driven by increased retail buying in North America and Japan. Although that forecast of 402 koz is below the record of 586 koz in 2020, it is still over 50% higher than the average annual demand for cash and coins for the seven years leading up to the pandemic, “the statement said Report.

Raymond added that robust demand for bars and coins strongly suggests investors are using platinum to hedge against rising market risk and inflationary threats.
“Investment demand continues to normalize after two record years and the process is becoming chaotic,” he said.

Raymond also noted that one of the biggest unknowns to the platinum market remains the evolution of the hydrogen economy. With so much focus on climate change, Raymond said nations will not achieve their goals without investing in hydrogen technology, and that means higher demand for platinum.

“You just can’t generate enough electricity with solar and wind power. But you can make hydrogen from it,” he said. “Any surge in automotive demand, investor demand, or a greater focus on hydrogen technology and you will see the platinum surplus go down very quickly.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no responsibility for any loss and / or damage that might arise from the use of this publication.

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