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Platinum Market Surplus Will Grow Despite Lower Supply

Platinum Market Surplus Will Grow Despite Lower Supply

By Yusuf Khan

Platinum market surplus expected to widen in 2022 as investment demand continues to weaken in global macro environment, despite tight supply of precious metals, according to new report from World Platinum Investment Council.

Weak demand for investment in the form of exchange-traded funds as well as the liquidation of precious metal inventories is expected to push the platinum market surplus to 974,000 ounces in 2022, up from the previous forecast of 627,000 ounces. of the first-quarter report, WPIC said Monday. .

WPIC forecasts a market surplus in the second quarter of this year at 349,000 ounces, compared to 130,000 ounces in the first quarter.

Last year, global demand was just over 7 million ounces, but it is expected to fall to 6.5 million ounces in 2022, largely due to weak investment in ETFs .

“For ETF holdings, fears of recession, rising interest rates and falling commodity prices were visible this quarter – reflecting the net sales trends seen in gold and silver ETFs” , said WPIC. He added that ETF holdings contracted by 89,000 ounces this quarter and are expected to continue falling in 2022, by a total of 550,000 ounces.

That said, physical demand has been quite resilient despite the challenges posed by lockdowns and the growing likelihood of recessions.

Automotive demand reached 708,000 ounces in the second quarter of 2022, down 5% from the previous quarter. WPIC noted that this is fraught with significant supply chain challenges in the form of semiconductor shortages and disruptions due to Russia’s invasion of Ukraine and in particular severe lockdowns. in China, and that was still an 8% increase from the second quarter of 2021.

Additionally, more than 3 million ounces are expected to be needed in 2022 from the automotive sector – above pre-pandemic levels when 2.87 million ounces were needed.

Jewelry demand also improved by 5% year-on-year thanks to increased US and European demand, which is important given that lockdowns are still hampering Chinese purchases.

This is accompanied by tighter supply from mining sources, particularly from South Africa and North America, with WPIC expecting an 8% year-on-year decline. to 7.5 million ounces.

In addition, the lack of automobiles produced and the increase in the number of used cars purchased caused the supply of recycled platinum to decline by 20% year-over-year.

Anecdotally, WPIC research director Trevor Raymond said on a call that traders have struggled to buy platinum in the spot market for physical use, and rental rates increased because of it. He added that when ETF demand losses are removed, the market is roughly in equilibrium, indicating a much tighter market appearing for the first time.

Concerns had also been raised earlier this year in terms of the supply of Russian platinum, with concerns about how material would exit the country – Russia accounts for 11% of total primary platinum production. However, those fears were allayed with the transfer of platinum through indirect sources, the WPIC said.

The WPIC noted that Chinese imports were well above reported demand, with this lag also seen last year. Raymond suggested it could be higher platinum loadings in heavy vehicles and increased substitution of platinum instead of palladium.

Write to Yusuf Khan at yusuf.khan@wsj.com

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