WPIC: Physical platinum market tightness persists in 2022 despite the increased surplus

0
279

 

The World Platinum Investment Council (WPIC) today publishes its Platinum Quarterly for the second quarter of 2022, with a revised full-year forecast for 2022.

Despite resilience in the automotive, jewellery and industrial sectors, combined with reduced mining and recycling supply, a reduction in ETF holdings and exchange stocks saw a platinum surplus in Q2’22 of 349 koz, and the forecast 2022 surplus increase to 974 koz.

However, despite the surplus, physical market tightness continued throughout the second quarter and remains ongoing. Q2’22 saw the resurgence of exceptionally strong import volumes into China, significantly above identified demand, which was met mainly by sizeable flows from platinum ETFs and exchange stocks.

These excess imports into China, which are not captured in published supply and demand data, resulted in physical platinum market tightness. This is evidenced by elevated lease rates, which have remained high, peaking at 10% in May, higher even than those seen at the peak of the pandemic and significantly above the ten-year average. This physical market tightness also incentivized the movement of platinum held by exchanges into the spot market to help meet the China import volumes.

Total supply forecast to decline 8% in 2022

Total platinum supply in 2022 is forecast to decline 8% (-626 koz) year-on-year to 7,514 koz. Mining supply in Q2’22 was down 4% as an increase in Russian output, following a recovery from flooding in 2021, offset year-on-year declines in all other producing countries. The issues in the second quarter, combined with the depletion of semi-finished inventory that boosted refined volumes in 2021, will see the total mine supply in 2022 decline 7% (-409 koz) year on year.

The recycling of platinum from spent autocatalysts fell by a noteworthy 20% year-on-year (-82 koz) in Q2’22, with automotive recycling forecast to be down 15% (-210 koz) in 2022. Driving this was the ongoing semiconductor chip shortage and its impact on new car availability, resulting in consumers being forced to run existing vehicles for longer, thereby reducing the supply of scrapped autocatalysts.

Resilience in automotive, jewellery and industrial sectors

Automotive demand for platinum grew 8% (+50 koz) year-on-year in Q2’22. Although the semi-conductor shortage is ongoing, it is easing and the year-on-year increase reflects higher vehicle production volumes, higher platinum loadings on the heavy-duty vehicle (HDV) after treatment systems, particularly in China and increased use of platinum in place of palladium in light-duty gasoline vehicles. In China, however, the strict lockdowns that endured during the first six weeks of the quarter weighed on vehicle production. For full-year 2022, platinum automotive demand is expected to increase by 14% (+376 koz) to 3,015 koz.

Jewellery demand improved by 5% (+26 koz) in Q2’22, with most markets aside from a COVID-impaired China, continuing to grow. This was bolstered, in part, by considerable demand in North America and Europe due to more weddings and platinum’s price remaining well below the price of gold. Platinum jewellery demand for 2022 is forecast to be 1,959koz – a slight increase on 2021.

Industrial demand saw growth in the petroleum (+17%, +7 koz), medical (+8%, +5 koz), and other industrial (+16%, +21 koz) sectors during the quarter, all of which are forecast to grow in 2022 as a whole. The growth in these sectors is masked within the overall industrial demand forecast for 2022 (-15%, -375 koz), as capacity expansions seen in 2021 in the glass and chemical sectors are not repeated this year.

Mixed investment demand obscured by physical metal flows

Global bar and coin demand strengthened quarter-on-quarter to 70 koz in Q2’22, driven by North American demand which is set to post a new post-COVID high in 2022 of 292 koz. However, in Japan, high yen-denominated platinum prices continued to encourage profit-taking among investors for the second consecutive quarter – albeit at a lower level to the previous quarter. Full-year total bar and coin investment is forecast to reduce by 14% (-47 koz).

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. ETF holdings contracted by 89 koz, albeit significantly less than in the previous quarter. Following this trend, ETF holdings are expected to continue to fall in 2022, declining by a total of 550 koz.

Meanwhile, NYMEX and TOCOM warehouse stocks fell by a combined 123 koz over the quarter. This reduction helped meet the flow of physical metal from Western markets to China, and compensate for the reduced availability of refined Russian ingot due to key Russian refineries’ loss of London Good Delivery status preventing its typical use.  Exchange stocks are forecast to decline by 300 koz for the full year as the physical market tightness and resulting high lease rates, seen in the second quarter, are expected to persist for the rest of the year.

Paul Wilson, CEO of the World Platinum Investment Council, commented:

“The surplus we are forecasting for 2022 must be seen within the context of exceptionally strong imports of platinum into China, which are well above identified Chinese demand and were a feature once again in Q2’22. Importantly, the definition of demand in our projections does not include speculative positions outside of bar and coin, ETFs and exchange stocks, therefore this additional ‘demand’ from China is not captured in our published demand data. The details of the split for this material between speculative and other demand segments is still yet to become apparent, however, we anticipate that this will become more apparent over the next 12 months.

“Significantly, the sustained high platinum lease rates we have been seeing throughout 2022 – the highest in ten years and higher even than those seen during the peak of the pandemic when moving materials was extremely challenging – are a clear indication of shortages of physical metal in the market. Furthermore, this already tight market is underpinned by constrained mine and recycle supply, as shown in our published data.

“Despite considerable headwinds in 2022, pockets of platinum demand strength, particularly in the automotive, jewellery and industrial sectors are promising in both the near- and long-term. Platinum’s role in unlocking hydrogen’s crucial contribution to achieving global net zero targets is becoming widely known and offers an option to investors looking for exposure to this area. The drive in Europe to reduce gas imports from Russia, as well as the recent passing of the US’s Inflation Reduction Act, places greater importance on the need for green hydrogen and provides further incentive for investment in the sector, which benefits platinum directly.”

 280 total views