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Platinum market will tip into deficit in 2023

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While global economic headwinds and high inflation have had a negative impact on a number of commodities this year, platinum is proving surprisingly resilient. This precious metal, which is not only used in jewellery but also in car production and other industries, has seen a surprising surge in demand which will create a supply shortage next year.

Very roughly, one third of the global platinum is used by automakers. Jewellery and other non-car-related industries account for around 28% each of the overall demand. Platinum ETFs and other investments also play a role in overall demand and can range anywhere from 1% to 20% of the total demand.

In the course of 2022 car makers have bought 12% more platinum than last year and are expected to increase their requirements by another 11% in 2023. The precious metal is typically used in catalytic converters in traditional vehicles. While these will eventually make way to electric cars, there will be more need for platinum in future hydrogen-powered cars. Also, in regions where traditional petrol cars still make up the vast majority of the new cars coming onto the roads, car makers are increasing the platinum loadings per vehicle in order to meet stricter environmental regulations.

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Chinese import surprise

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Given the global economic background and high inflation, the market was initially expected to be oversupplied this year, but any surplus, and some, were mopped up by Chinese buyers, according to the World Platinum Investment Council (WPIC). With prices dipping late 2021 and early 2022 China ended up importing 1.44 million ounces of platinum in the first six months of 2022. Yet despite the rising levels of imports the lease rates in China spiked in the spring, indicating local shortages. They peaked at 10% in May and while they have come down since then they are still comfortably above the 10-year average.

Most of the additional metal came from platinum ETFs and exchange stocks. Mine supply is relatively rigid, currently increasing by roughly only 2% per year, so it is difficult for mine supply to respond to quick changes in demand.

In its first supply and demand forecast for next year, WPIC said it expects the global market to be in a deficit of 303,000 ounces as demand rises by 19% but supply only follows at 2%. Total demand is expected to reach 7.77 million ounces against a supply of 7.47 million ounces.

Supply constraints

On the supply side, maintenance and power supply issues in South Africa have caused the country’s platinum output to drop by 18% in the third quarter of this year. Given South Africa’s prominent role in mining – it mines over 70% of the world’s platinum – global supply is expected to be 9% lower this year compared with 2021. While some of the issues should ease in the course of next year, global output is expected to increase only by a modest 2% in 2023. While in some years recycling can fill in some of the supply gaps this year, this has not been the case, primarily as the limited supply of end-of-life vehicles reduced spent autocatalyst supply. Global recycling is expected to expand by 4% in 2023 as new vehicle production strengthens.

So, despite the recessionary outlook, for next year platinum demand and platinum prices look set to be on course for growth.

WisdomTree Platinum ETFs

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Physical Platinum
Hargreaves Lansdown | Interactive Investor Charles Stanley Direct | EQi
JE00B1VS2W53 PHPT USD
WisdomTree Platinum 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00B2NFV134 LPLA USD

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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