24 November 2015

BLOG: WPIC REPORT CLAIMS THAT GLOBAL PLATINUM DEMAND COULD RISE POST VW SCANDAL

It has been a tough year for everyone operating in the platinum market. The spot price has fallen by 14.2% to $855/oz which is its lowest point since November 2008 when it reached $852/oz and compares with the all time high in March 2008 of $2,066/oz. In the past year only palladium (down 18.4% to $558/oz) has fallen by more among the precious metals, with gold down by 11.0% at $1,068/oz.

Against this backdrop, the World Platinum Investment Council (WPIC) today published its fifth Platinum Quarterly data set, which scrutinises market activity in the third quarter of 2015, and provides a full year forecast for 2015 and projections for 2016.

The third quarter of 2015 was dominated by the Volkswagen emissions revelations. The use of platinum in automotive applications currently accounts for 43% of total demand, most of it in exhaust catalysts. While many commentators postulated that the scandal would inevitably mean a reduction in platinum demand, corresponding to fewer diesel cars, WPIC does not agree. Its view is that the outcomes may well include auto manufacturer, regulatory and consumer actions that are as likely to lead to an increase in the use of platinum in automotive applications in the coming months and years.

The report highlights that the global deficit between supply and demand of platinum is growing. The estimated deficit of 320 koz in Q3 2015 follows a 20 koz deficit in Q2 2015 and is in stark contrast to the 240 koz surplus in Q3 2014, immediately after the miners’ strike in South Africa. Total global demand in Q3 2015 rose by 260 koz quarter-on-quarter as growth in jewellery, investment and industrial demand offset the usual seasonal, summer holiday, dip in automotive demand. Comparing Q3 2014 and Q3 2015, there was a significant upswing in investment demand on the back of strong bar sales in Japan and ETF increases in South Africa.

At the moment the supply deficit is being covered by a reduction in above ground stocks. Which are expected to decline by 300 koz to 2,440 koz at the end of the current year. Above ground stocks are cumulative platinum holdings not associated with ETFs, metal held by exchanges or working inventories of mining producers, refiners, fabricators or end-users. They have been at high levels for the past few years and are in part responsible for recent price slippage, but they are now declining steadily. For 2016, the WPIC expects supply and demand to be almost in balance with total supply increasing by 6% to 8,160 koz due to a 4% increase in output from the mines and an 11% increase in recycling. Total demand is expected to increase by 2% to 8,155 koz. However, investment demand is the least predictable segment of the demand spectrum and with the metal trading at the bottom of recent ranges, it could provide a significant upswing.