Platinum has continued a dramatic period of demand and healthy prices despite reports that a production surplus may be reached by year end.
Trading Economics reported in mid-September that platinum futures rose above US$950 per troy ounce and remained close to levels not seen since November 2020, as demand concerns from the automotive industry persisted.
A global semiconductor chip shortage that began in the first quarter of 2021 is expected to last until late next year, hitting the auto industry where the metal is used in catalytic converters.
However, despite semiconductor shortages, automotive demand grew by 75% according to the World Platinum Investment Council (WPIC).
The WPIC’s recently published Platinum Quarterly for the second quarter of 2021, reported that automotive demand jumped to +285 koz year-on-year in Q2 2021 as global light vehicle production recovered from the pandemic.
According to the WPIC, had it not been for stoppages across the world, as the semiconductor shortage persisted, demand for platinum would have been higher – by an estimated 50 koz.
Automotive platinum demand increased most noticeably in Europe (82%, +127 koz) due to a combination of the implementation of emissions standard Euro 6d and some platinum for palladium substitution gains, and despite a further fall in the portion of diesel car sales.
So too there were significant rises in North America, where vehicle production surged, lifting platinum demand by 130% (+51 koz). This demand category is expected to rebound strongly this year, up 22% (+529 koz) on 2020 and is also higher than 2019 (+2%, +58 koz).
Fluctuating global markets and a faster than expected return from COVID-19-affected mine shutdowns has led the WPIC to issue a revised forecast for 2021 and predict a small surplus of platinum production.
The WPIC said that despite global demand in Q2 2021 continuing the positive year-on-year growth trend seen in the previous three quarters, with the stand-out rises in automotive and industrial segments, the combination of mines operating at 97% of capacity and the faster-than-expected processing of material built up during plant outages in 2020 meant supply outstripped demand, resulting in a surplus for the second quarter of 161 koz.
With recoveries in economic output surprising even the most optimistic growth expectations, platinum demand has benefitted and this is expected to continue for the rest of the year.
Global platinum demand was up sharply against Q2 2020 increasing 23% (+352 koz) year-on-year to 1,907 koz, with 2021 forecast to increase by 1% (+59 koz) over 2020 to 7,753 koz.
The recovery from COVID-19 was particularly evident in the industrial segment which rose 46% (+188 koz) on Q2 2020, and 10% (+54 koz) on Q2 2019. The WPIC reported that the use of platinum in industrial applications is expected to increase by 25% (+493 koz) in 2021.
Platinum demand from the chemical industry in Q2 2021 was particularly strong, rising 83% (+93 koz) on Q2 2020, and from glass up 39% (+31 koz) and similarly, their forecasts for 2021 will increase 14% (+80 koz), and 69% (+268 koz) respectively.
Investment demand stabilizes
Following the exceptional demand in 2019 and 2020 for ETFs and bar and coin, elevated further in 2020 by unprecedented exchange stock inflows, the WPIC reported that investor demand in Q2 2021 was measured 191 koz. However, that was a 50% drop year on year.
For the year, investment demand is forecast at 521 koz, which although 66% lower than in 2020, is still above the pre-pandemic average from 2013 of 495 koz per annum.
“Since the start of this year, the pace of recovery in economic activity has exceeded expectations with both platinum demand and supply increasing, a trend which looks set to continue for the rest of the year,” WPIC CEO, Paul Wilson, said.
“While we have revised our forecast to a modest surplus in 2021, this should be considered within the context of the unprecedented and seismic change caused by the pandemic. There are currently a number of different dynamics at play.
“In the short term, the transitory nature of higher mine supply in 2021 and 2022 arising from processing the semi-finished material built up during plant outages in 2020 has presented an upsurge in supply that has tipped the balance.
“Meanwhile, chip shortages are hampering growth potential in the automotive sector.
“Longer term, however, signs of an established recovery are present, benefitting in particular, the industrial and automotive sectors.
“Demand growth appears likely due to higher loadings and rising production of heavy-duty vehicles, increasing platinum substitution for palladium, industrial demand growth and growing investor interest in the burgeoning hydrogen economy,” he said.
Rollercoaster ride to continue
The World Bank has also highlighted the effect of the global shortage of semiconductor chips as having a significant effect on the platinum market.
Wee Chian Koh and John Baffes writing for the World Bank’s Data Blog noted that platinum demand in industrial applications and jewellery demand has strengthened amid the recovery in global economic activity.
Automotive demand has increased as tighter vehicle emission standards in China and Europe require higher platinum use in autocatalytic converters, while supply disruptions due to flooding at two mines in Russia also supported prices.
The article said that the global shortage in semiconductor chips is a key variable for platinum demand, as auto manufacturers may be forced to drop certain chip-intensive features from some models or temporarily shut down some factories.
In the longer term, battery driven electric vehicles present a threat to auto catalyst demand in internal combustion engine vehicles.
However, quicker adoption of green hydrogen technologies could boost platinum’s demand (platinum is used in fuel cells and in the electrolysis of water to produce green hydrogen).
Nevertheless, while platinum demand remains strong and its value has begun to rise again, the price of some of the PGM group has fallen dramatically in recent months.
Rhodium in particular has registered a dramatic 60% decline, albeit off dramatically high prices earlier in the year, while palladium has slipped to its lowest level for almost 12 months of strong highs.
The general feeling amongst analysts is this recent roller coaster of price rises and falls may continue into the new year and follow the fluctuations of the global battle with COVID-19.