Modern Mining January 2023

PLATINUM OUTLOOK

Platinum to surge ahead this year By Edward Sterck, Director of Research, World Platinum Investment Council The platinum market is forecast to swing into deficit in 2023 and is well-insulated from economic headwinds. The platinum supply/demand balance is expected to be in deficit in 2023, a swing of over 1.1 moz following – on the face of it – two consecutive years of significant surpluses. This is due to constrained supply and strong demand growth in au tomotive and industrial applications, plus a significant reversal from negative to positive investment demand.

Edward Sterck: Director of Research at the World Platinum Investment Council.

T he surpluses of 2021 and 2022, at 1 147 koz and 804 koz respectively, belie the underlying market tightness, as evidenced by elevated lease rates, which prevailed throughout this time. The surplus of 2021 was largely attributable to a one-off supply boost stemming from a tempo rary bottleneck in production volumes resolving, plus investment outflows as investors rotated out of exchange traded funds (ETFs) into mining stocks to access high-yielding dividend income. The surplus in 2022 was due to further sizeable investment out flows, albeit driven by different dynamics. Weakened automotive production volumes, due to residual pan demic-related issues, also played a part, curtailing growth in automotive demand. It is apparent that, over this period, platinum imports into China exceeded identified demand by considerable amounts; according to Bloomberg data, almost 2.5 moz of platinum in excess of iden tified demand entered the country between the beginning of 2021 and the end of the third quarter of 2022, a figure that fully absorbs the surpluses of 2021 and 2022 combined, none of which was cap tured by published supply and demand data. In all probability, a significant proportion of the investment outflows from exchange stocks and ETFs flowed to China to meet this unrecorded demand – explaining market tightness, despite the hefty surpluses. These excess imports are now largely geographically

captive within China due to export controls, and therefore unavailable to meet 2023 metal shortfalls outside of China. Furthermore, they are only likely to become available domestically at significantly higher platinum prices than those seen in recent years. Platinum mining supply was beset by operational challenges in 2022, which are expected to remain a feature throughout 2023. In particular, power outage issues in South Africa could well impact refined metal output negatively for the foreseeable future. While output from Russia is currently forecast to remain flat year-on-year in 2023, Nornickel has cautioned of risks to future production levels as it struggles with the impact of sanctions on mining equipment, spares and consumables. Global mine supply in 2022 declined by 9 per cent compared to 2021, to 5 637 koz. South Africa represents the bulk of the drop and fell 14 per cent year-on-year to 4 012 koz, with reduced smelter availability adding to power outages. This year, total mining supply is forecast to rise 2 per cent only. Reduced availability of end-of-life vehicles, as auto makers are still unable to meet new vehicle demand, sees recycling supply remain below pre-Covid lev els in 2023. Overall supply is also forecast to rise by 2 per cent only. The 19 per cent growth in total platinum demand predicted for 2023 is heavily influenced by growth in the automotive and industrial sectors. At around

Platinum mining supply and demand schematic. Source: WPIC Platinum Quarterly Q3 2022, Metals Focus.

40 per cent of demand, the outlook for platinum automotive demand is key to the supply/demand funda mentals of platinum. The automotive sector itself has been hampered in its post-pandemic recovery due to supply chain issues – in particular, shortages of semi-conductor chips – meaning that fewer vehicles than expected had been produced before COVID-related disruptions and lockdowns impacted the industry. In 2023, car produc tion will once again fall short, by more than an estimated 15 million vehicles, when compared with 2023 automotive production forecasts released pre-pan demic at the end of 2019.

14  MODERN MINING  January 2023