The World Platinum Investment Council believes 2019 looks encouraging for platinum group metals based on continued demand growth for platinum
This is predominant in the industrial sector coupled with a consequent rebound in investment.
As such, WPIC CEO PAUL WILSON believes that the industry can look forward to a number of promising trends in 2019.
Compiled by SASCHA SOLOMONS.
This article first appeared in Mining Review Africa Issue 1, 2019
According to the WPIC’s latest Platinum Quarterly, the 2019 forecast is introduced with a market surplus of 455 000 oz which is 10% lower than the surplus in 2018, reflecting increases of 2% in both supply and demand.
2018 highlights was growth from the industrial segments of the petroleum and glass market, with strong bar and coin investment growth.
Offsetting these positives is the continued decline in European autocatalyst consumption and weaker Chinese jewellery demand.
Looking into 2019, the decline in automotive demand is more than offset by growth in other demand segments, as jewellery returns to annual growth and industrial demand remains strong.
A turnaround in Exchange-traded fund (EFT) investment is expected; aided in part, in the WPIC’s view, by value investors considering platinum in light of its widening price discount to palladium and rhodium.
In addition, the WPIC highlights that in 2019, demand growth will be driven mainly by chemical and petroleum demand reflecting economic growth, and a doubling in investment demand as a rebound in ETFs adds to robust bar and coin demand.
Challenges remain in the automotive sector as European diesel appetite continues to decline on negative consumer sentiment, driven by uncertainty regarding diesel car restrictions in some European cities.
The automotive platinum demand forecast for 2019 assumes no significant substitution by platinum for palladium in gasoline auto-catalysts, despite palladium’s price premium exceeding US$300/oz.
Economic and supply concerns argue strongly for automakers to consider a partial switch from palladium to platinum.
Though technological development and certification may pose switching costs, these are probably more than overcome by the current palladium price premium over platinum.
Recycling platinum supply growth will also remain at 1% year-on-year in 2019, due to additional autocatalyst supply, which will offset weaker jewellery recycling.
“We believe more ETF investors find platinum’s widening price discount to palladium and rhodium interesting,” says Wilson.
Demand for bars and coins in 2018 has shown a strong trend, at 210 000 oz year-to-date, up 45% year-on-year, which the WPIC believes has been aided by product development efforts, and platinum’s significant discount to gold.
“New platinum investment products and services have been made possible through our strong partnerships with The Royal Mint, Tanaka, Valcambi, GraniteShares and BullionVault plus, most recently from our Shanghai office, Hengfu and Taiyuan.”
A detailed view
Global refined production is forecast to grow by 1% (+90 000 oz) to 6 170 000 oz in 2019.
This growth is attributable to shafts ramping up in South Africa and the US. South African production is forecast to increase by 1% (+55 000 oz) year-on-year to 4 450 000 oz, while North American production is expected to grow by 12% (+45 000 oz) to 410 000 oz.
Output from Russia is forecast to decrease by 3% (-20 000 oz) to 665 000 oz owing to depletion of alluvial sources, while supply from the rest of the world should remain broadly stable.
Platinum recycling is forecast to expand by another 1% (+25 000 oz) in 2019 to 1 935 000 oz.
Autocatalyst recycling is expected to increase for a fourth consecutive year, adding an additional 45 000 oz to reach 1 450 000 oz of annual platinum supply.
The mix of powertrains in scrapped vehicles in Western Europe is predicted to shift further in favour of platinum-rich diesels.
There is a slight risk around North American volumes as the slowing sales of new autos in the US could lead to marginally lower numbers of vehicles being scrapped.
However, the collection rate of autocatalysts from scrapped vehicles should continue to remain high while the palladium, rhodium and steel prices remain elevated.
Jewellery recycling is forecast to decline by 20 000 oz to 480 000 oz in 2019 owing to a low platinum price and a further contraction in the Chinese platinum jewellery market.
Moreover, lower diesel vehicle production in Western Europe combined with ongoing thrifting of platinum in light-duty gasoline autocatalysts in Japan and cooling of the Chinese vehicle market, is expected to slightly reduce global automotive platinum demand by 1% (-35 000 oz) year-on-year to 3 075 000 oz in 2019.
Western Europe’s diesel car sales are expected to decline further next year (-4% year-on-year to 5.0 million units), lowering the overall diesel share to below 35%, with further risks to the downside.
Demand is forecast to increase in North America owing to a higher diesel share in the light-duty segment, while requirements in India and the Rest of the world are also expected to rise, driven by higher vehicle output and stricter emissions legislation.
In light of the widening price differential between platinum and palladium (~$240/oz at the end of October 2018), thrifting of platinum in light-duty gasoline autocatalysts in Japan might be reversed.
Globally, the use of some platinum at the expense of palladium in gasoline catalysts will become increasingly likely, but it is unlikely to impact demand in 2019 as new catalyst formulations take time to certify and reach the production line.
In terms of platinum jewellery demand is estimated to grow 1% (+25 000 oz) to 2 430 000 oz in 2019, which would make it the first year of growth since 2014.
Chinese demand is expected to continue its decline, albeit at a slower rate, as platinum struggles to find its place in a changing market where the trend towards jewellery pieces for daily wear and purchases by younger consumers are becoming increasingly important.
This fashion trend is likely to involve a move away from weight-based pricing to design-led pieces, which are priced by piece, leading to less metal demand for the same level of retail spending.
Furthermore, the downward trend in the platinum price means that consumers are aware that their purchases of platinum jewellery may not hold their value.
However, the slower rate of decline in China and the anticipated growth in all other regions, which are largely expected to continue their trends from 2018, lifts global demand, resulting in a positive year-on-year change.
Industrial platinum demand is projected to rise by 4% (+65 000 oz) year-on-year to 1 895 000 oz in 2019, strengthened by greater requirements for petroleum processes (+55 000 oz) and chemical catalysis (+40 000 oz).
The rate of refining capacity expansion is expected to accelerate in China, North America and the RoW next year, boosting petroleum demand in these regions, while new ADH units in China and the US should lift new metal purchases by the chemical sector, along with growing paraxylene capacity (also in China) and silicone production.
However, decreasing demand for use in glass fabrication (-5 000 oz) and other end-uses (-25 000 oz) is set to hinder overall demand growth somewhat, as thrifting is likely to temporarily reduce requirements for fuel cells, despite further growth in unit volumes. Electrical and medical usage is also forecast to remain stable.
Platinum investment is forecast to be 250 000 oz in 2019. Japanese investors have become somewhat inured to the low platinum price, so, while the price is expected to remain subdued in yen terms as the yen is forecast to strengthen slightly, an easing in overall bar demand is anticipated. Coin demand is likely to be similar to the levels seen in 2018 and global ETF holdings are projected to experience a modest increase.
Above ground stocks
The market is projected to have a surplus of 505 000 oz in 2018 and 455 000 oz in 2019, which will result in above ground stocks reaching 3 120 000 oz at the end of 2019.
The WPIC definition of above ground stocks is: the year-end estimate of the cumulative platinum holdings not associated with exchange-traded funds, metal held by exchanges or working inventories of mining producers, refiners, fabricators or end-users.