The World Platinum Investment Council (WPIC) has projected an 8% and 7% decline in global supply and demand respectively in 2022, driven by operational constraints in South African and North American mining operations and delayed end-of-life vehicle scrappage hampering recycling supply.

In its 2022 second-quarter report, WPIC said the forecasted decline in supply and demand will result in the global market surplus falling by 10% year-on-year to 974 Koz.

“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,” read the report.

WPIC added, “The issues in the second quarter, combined with the depletion of semi-finished inventory that boosted refined volumes in 2021, will see total mine supply in 2022 decline 7% (-409 Koz) year-on-year.”

According to the report, mine supply from South Africa was down 3% year-on-year due to power outages, adverse weather conditions and operational challenges, whilst North American production was down 13% due to a mine flood and processing maintenance in Montana and Sudbury respectively.

The report further highlighted that whilst Russian production was up 18% year-on-year, there are potential risks to output in the second half due to the unavailability of replacement mining equipment from Western suppliers as a result of sanctions.

“Looking at 2022 as a whole, mine supply challenges are expected to continue, with particular risks to Russian production in the second half, and scrapped vehicle availability for recycling is expected to remain constrained, despite an improving outlook for automotive production,” WPIC said.

Meanwhile, aggregate platinum demand declined 13% (-248 Koz) year-on-year in Q2’22, with stronger industrial and jewellery demand offset by slightly weaker automotive demand, and significantly weaker investment demand (-329 Koz). The net effect as per the quarterly platinum outlook report was that the precious metal saw a surplus 349 000 ounces in the second quarter.

The WPIC noted that automotive demand is projected to be up 14% year-on-year due to higher internal combustion engine (ICE) vehicle production (+3% year-on-year) as ongoing supply chain challenges show signs of easing and, more significantly, higher platinum loadings due to tighter heavy-duty emissions legislation and platinum for palladium substitutions in gasoline vehicles increases further.

Automotive demand is now forecast to total 3,015 koz in 2022, +14% (376 koz) year-on-year.

Platinum remains a critical metal in the automotive catalytic converters, which are used to remove harmful emissions from gasoline and diesel-powered engines and automotive demand represents a substantial majority of the platinum market.

Jewellery demand is expected to remain flat year-on-year at 1,959 Koz (+6 Koz) versus the first-quarter forecast of a 2% decline.

“The improved outlook is driven by stronger demand from the US and India in particular, with consumer demand in India supported by the increased promotion of platinum goods by jewellers,” WPIC.

Furthermore, industrial demand for platinum is expected to decline 15% year-on-year (-375 Koz) to 2,132 Koz and although down from the record levels of demand seen in 2021, this is up slightly from the first quarter expectations, with 2022 close to being the second strongest demand year in the series, supported by a small, but growing, demand from the production and use of green hydrogen in electrolysers and fuel cells respectively, amongst other factors.

While overall production for 2022 is expected to be -8% weaker than the 2021 outturn, South Africa’s production is expected to decrease by 10%, Russia's 1%, and Zimbabwe's 4%.

Platinum metal is mined in four main geographies, South Africa, Russia, Zimbabwe, and North America. South Africa dominates platinum mine supply, typically accounting for +/-75% of total mine supply aside from years of exceptional production disruption. As such, small changes in output from South Africa have the greatest bearing on variations in total platinum supply.

Looking forward, 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,” WPIC said, adding, “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.”

Equity Axis News