The World Platinum Investment Council (WPIC) today published the 25th edition of its Platinum Quarterly for the third quarter of 2020, which also includes the first forecast for 2021.
Despite the strong quarter-on-quarter recovery in mine and recycle supply, the stellar rebound in automotive demand and sustained strong investment demand for precious metals, including platinum, lifted Q3’20 platinum demand well above supply, leaving the quarter in a deficit of -709 koz. The deficit in 2020 is now expected to be just over 1.2 million ounces, with the outlook for 2021 a forecast deficit of -224 koz.
Overall, Q3’20 saw large sections of the market, both supply and demand, returning to near-pre-COVID-19 operational levels as global economic conditions improved compared to the first half of 2020.
Total platinum supply in Q3’20 was down by 5% from Q3’19; modest when compared to the 36% year-on-year fall in Q2’20. Total mine supply grew to within 4% (-66 koz) of the Q3’19 level as operations ramped up capacity over the quarter. However, the total mine supply forecast for 2020 sees a 21% fall (-1,300 koz) year-on-year with c.-400 koz due to COVID-19-related mine shutdowns and c.-900 koz due to the impact of the converter plant outage in the first half, compounded by the recent announcement of a similar outage in the last two months of 2020. The latest outage will alone reduce supply by c.-350 koz this year.
Platinum investment demand rockets and is set to remain high
Investment demand increased considerably in Q3’20, up year-on-year by 291% (+730 koz), with significant year-on-year rises in ETF demand (increase of +336 koz) and bar and coin demand (increase of +42 koz). This was aided by the increase in stocks held by exchanges (primarily NYMEX approved warehouse stocks) which rose by +351 koz year-on-year as market making banks continue to increase these stock levels. Investment demand is expected to grow by 32% (+406 koz) in 2020, as precious metals including platinum remain an attractive alternative investment, supported by platinum’s deep discount to gold. A healthy 123% increase in bar and coin investment is forecast for 2020, and demand will continue to remain high by historical standards going into 2021.
Automotive demand bounces back 70% in Q3 quarter-on-quarter with 24% annual growth forecast in 2021
Despite COVID-19 workplace requirements in plants impacting capacity across the globe, pent-up vehicle demand and incentives in Europe and elsewhere drove growth in global automotive production levels. Consequently, automotive demand for platinum in Q3’20 was just 3% below Q3’19. The early adoption by some cities and provinces of China 6 legislation for light duty vehicles and the ramp-up of heavy duty vehicles’ compliance requirements to China VI saw China platinum auto demand growth of 68% (+30 koz) year-on-year in Q3’20.
A 24% (+575 koz) annual increase in global automotive demand for platinum is forecast in 2021 as light duty vehicle production is set to increase 15%, and heavy-duty vehicle production grows by 5%. Increased loadings to meet more stringent emissions levels will also benefit the demand for platinum. So too will the potential for some platinum being used in place of palladium in gasoline autocatalysts and some shift from palladium to platinum in diesel after-treatment systems. Substitution in gasoline engines is expected mainly in China and North America in 2021. The price of palladium remains over $1,000 per ounce above platinum, maintaining a high incentive for substitution, particularly as automaker profits suffer from lower sales.
Chinese jewellery demand forecast to rise in 2021 for the first time in seven years
Global platinum jewellery demand in Q3’20 bounced back by 27% quarter-on-quarter as pandemic-related restrictions eased, with a 14% (+29 koz) increase in China. Looking to 2021, global jewellery demand is forecast to gain 13% (+246 koz), with all regions seeing double-digit growth.
Low platinum prices prompted strong imports of platinum into China during the early months of the COVID-19 pandemic by jewellery manufacturers. As China’s government is expected to maintain their successful virus containment protocols, consumption is expected to continue to improve, with platinum jewellery demand expected to increase in 2021 by 13% (+107 koz) - the first annual rise since 2013.