Although platinum prices remain below $1,000 an ounce for now, according to the latest comments from the World Platinum Investment Council (WPIC), it will not take long for the precious and industrial metal to be in deficit by the end of the year. Trevor Raymond, head of research at WPIC, noted that platinum had a strong start to the year, hitting a near one-year high of $1,197 an ounce during the session.
Since hitting highs in early March, platinum prices have given back all of their gains this year. However, Raymond added that the current supply and demand fundamentals will not change much and will support platinum prices higher before the end of the year.
"Demand remains fairly strong, but supply appears to be fragile. We expect only a small change in supply and demand to have a significant impact on the market," he said.
At the beginning of the week, WPIC released its first-quarter report and revised its full-year outlook. In the first three months of the year, demand was down 26% from the first quarter of 2021, while supply was down 13% year-on-year, leaving the market with a surplus of 167,000 ounces. On a full-year basis, however, reduced supply and strong demand, especially in the auto sector, helped reduce excess market gluts. The report's authors said they expected supply to fall 5% this year while demand rises 2%.
Overall, the board believes the platinum surplus to fall to 627,000 ounces, down significantly from last year's 1.128 million ounces.
Turning to platinum supply, Raymond noted that the ore reserves accumulated in 2020 have now been depleted.Russia's ongoing war in Ukraine could also affect platinum supplies. Recently, as part of the sanctions, the British government raised tariffs on imports of platinum and palladium from Russia.
Russia accounts for about 11% of global supply.
Regarding platinum demand, the report said that automotive demand for platinum was flat at 725,000 units in the first quarter of 2022. Platinum is a key metal in catalytic converters used in gasoline and diesel-powered vehicles. However, WPIC expects auto demand to grow 16% this year.
As for the jewelry market, the report said that overall global platinum jewelry demand fell by 9% or 42,000 pieces compared to the first quarter of 2021, with a decline of 2% expected for the full year.
Raymond noted that while demand for platinum jewellery in Europe and North America has been healthy, the global market has been dominated by weakness in China as it continues to impose strict lockdowns.
The other major market for platinum remains investment demand, which is most sensitive to the supply and demand outlook. Combined demand for platinum bars and coins was 60,000 ounces in the first three months of the year, up from 21,000 ounces of physical demand in the first quarter of 2021, the report said.
However, platinum ETFs experienced outflows in the first quarter, which can be attributed to one particular fund in Europe. As for what will bring investors back into the market, Raymond said any panic in the market will affect prices.
