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Platinum market to roll into supply shortage but demand from green energy transition not in sight

09 january 2023

Platinum market is poised for a profound change on the verge of 2023, as supply surplus is forecast to turn into a deficit. According to a recent study published by the World Platinum Investment Council (WPIC), platinum demand may achieve a double-digit growth in 2023, while production is expected to rise insignificantly, leading to a notable swing in the market balance.

Meanwhile, major platinum mining companies have downscaled their production forecasts this year due to various factors. China buying removes large quantities of the metal from European markets as green energy transition continues. Since platinum is widely used in the hydrogen electrolysis process to produce an eco-friendly fuel, this factor is also expected to give the platinum market a big boost.

But in order to achieve net zero emissions with platinum fuelling this transition, our planet needs to undergo a fundamental, never seen before change that can well be a thing of a somewhat distant future. More mundane applications of platinum however can give the market a strong support in a shorter term. 

Favorable fundamentals

According to the recent study conducted by the research consultancy Metals Focus and published by the WPIC, supply and demand on the platinum market are looking favorable going into 2023. The market is forecast to be in a deficit of 303 000 troy ounces as global platinum demand is expected to increase by 19% to 7.770 million ounces while supply will increase by just 2% to 7.466 million ounces. The body cites the supply constraints, combined with increased bar and coin demand, to be the main drivers behind this development. The previous supply surplus forecast by WPIC was revised down by 17%, tipping it into a deficit territory.

In an interview to Kitco News, Trevor Raymond, CEO of WPIC, said that for the past two years, platinum supply has been almost flat but remained 7% below 2019 levels when Covid-19 epidemic began. Earlier, demand has also been down due to significant outflows from ETF holdings and exchange stocks. Recently however both industrial and automotive demand have picked up as automakers ramp up vehicle production to sate the market that crunched during the pandemic. Semiconductor chips shortage that plagued the automotive producers over the last couple of years, is gradually subsiding going into 2023, too.

Adding to healthy platinum consumption is that in 2022, China imported almost 1.2 million ounces more than its demand needs, signifying the fact ETF outflows from western markets found their way into the East, says Raymond. He argues that it is partly to do with building up of the fuel cell electric vehicle business in the country, and partly with industry use.

WPIC forecasts that global mine supply will contract by 9% to 5.637 million ounces in 2022. Disruption is likely to remain a feature in 2023, with the forecast up a modest 2% year-on-year to 5.726 million ounces. Some of the major platinum mining companies have already cut their production forecasts, mostly due to maintenance and power supply challenges in South Africa, world's largest platinum producer.

Anglo American Platinum (Amplats) slashed its production forecast for 2023 and 2024 due to lower grades at its Mogalakwena operations and lower volumes from Amandelbult, although 2022 output remains within target. Its refined PGM output for 2023 and 2024 is now expected to be between 3.6 million and 4 million ounces, lower than the initial guided range of between 3.8 million and 4.2 million ounces for 2023 and 4.1 million and 4.5 million ounces in 2024.

Impala Platinum Holdings (Implats) said its refined production of platinum declined by 4% in the quarter ended September 30. This difference was directly owing to the longer duration of the refining process and the impact thereon of the maintenance programme during the period.

According to Sibanye-Stillwater, its output of 4-element PGM concentrate (principally platinum, palladium, rhodium and gold) output at South African operations dropped to 432 143 ounces in three months ending September 30, from 500 073 for the same period of 2021.

Russia's Nornickel however predicts that in 2022, platinum market is going to achieve a net balance before returning to a moderate supply surplus of 0.3 million ounces in 2023.

Platinum market fundamentals look promising at the moment while the metal's applications in hydrogen production are often associated with its bright future prospects. However, support may come from sectors that are not usually in a focus of attention as net zero emissions remain a distant, albeit a virtuous goal. 

Overlooked factors of demand

In shorter term, platinum market may gain support from a few not-so-obvious sources, namely industry (glass production in particular), bar and coin investment in Japan and the West, and the U.S. Federal reserve policy.

According to WPIC, platinum industrial demand is set to increase by 10% in 2023 to 2.316 million ounces – a second strongest year on record. Notable increase comes from glass production which is expected to jump by 52% to 481 000 ounces driven by anticipated growth in capacity expansions and ongoing strong demand in China, as well as fibreglass plant projects in Egypt.

The glass industry most commonly uses platinum, platinum-rhodium alloys and, recently, iridium. These metals and alloys have a high temperature and oxidation resistance, and protect a variety of components and ceramic substrates used in glass manufacture from erosion by molten glass. This allows manufacturers to reduce downtime, extend equipment life, retain the shape of ceramic parts, end up with fewer defects in the final product and make glass purer due to less contamination. Platinum is also used in high temperature, oxidation resistant dies particularly for fibreglass, fibre optics manufacture, and crucibles for other glass manufacture.

The global glass manufacturing market size was valued at $106.44 billion in 2021 and is expected to expand at a compound annual growth rate of 5.2% from 2022 to 2030. Rising spending on residential and commercial construction, along with the growing penetration of recyclable materials in the packaging sector, is anticipated to boost market growth during the forecast period. Adding to that is a rapid proliferation of 5G network which requires highest-quality fiber optics to provide fast internet access.

Next year, platinum bar and coin demand is forecast to jump by 49% to 507 000 ounces, a three-year high, as manufacturers in North America and Europe allocate more capacity to platinum on weaker gold and silver demand, and net disinvestment in Japan swings to net investment.

"The most mature market for platinum bar and coin [investment] is actually Japan, - says Raymond. - We have seen an explosion over the last few years of that demand in the West [too]." According to him, investors in Japan are starting to get affected by inflation which incentivizes them to buy back despite higher prices and weaker yen. WPIC has also been working with Swiss refineries to bring more platinum to North American markets.

The Fed policy has historically been a major factor for precious metals markets. When the policy-maker raises interest rates to combat inflation, it makes safe-haven assets like precious metals depreciate in comparison with riskier assets that can yield more profit to investors. According to a recent study, consumers are expecting inflation to improve in the coming months. Thus, platinum may gain on the back of the weakened dollar if the Fed's stance eases in 2023. 

Fuel cells are not fuelling the platinum market

Platinum market prospects are often associated with green energy transition which is closely tied with hydrogen production. Thanks to its high temperature resistance, this precious metal is used in proton exchange membranes for hydrogen electrolysis, a key technology to achieve net zero carbon dioxide emissions. Hydrogen can potentially solve the current energy crisis by substituting fossil fuels like natural gas and oil in industry and transportation. However, green transition faces quite a few headwinds before its widespread adoption.

First, hydrogen electrolysis is an extremely power-intensive process and it does not make much sense if done using conventional electric power sources on a worldwide industrial scale. To achieve zero emissions and negate climate change, it has to be done via renewable power sources like wind turbines, solar panels, nuclear power plants and more exotic means like tidal power, concentrated solar thermal plants among others. Unfortunately, according to some analysts, it may cost a whopping $5 trillion of investment into renewable energy to achieve this transition. It's the developed countries that will have to bear these costs, effectively paying for green efforts in developing nations. That is, if they reach a consensus on the matter.

For now it seems that the consensus is not in sight. The recent U.N. Climate Change Conference (COP27) in Egypt was nothing short of a disaster. Instead of outlining specific measures to combat climate change, countries argued about who is going to pay for losses caused by rising temperatures and accelerating natural disasters. The escalating damage from climate change has deepened divisions between wealthier and developing nations rather than galvanizing more aggressive action. "There hasn’t been a real effort to bring this to a consensus," a European negotiator was quoted.

With that said, fuel cell electric vehicles (FCEV) is another sector for hydrogen consumption and, consequently, platinum demand. The more FCEVs are on the market however, the less platinum is going to be used for catalyzers in conventional petroleum and diesel cars, and at the same time, it is going to be utilized more in both hydrogen fuel cells and hydrogen production. This is not really an issue, or a big factor, for platinum market for one key reason.

The global FCEV market was valued at $1.19 billion in 2021 and it is expected to hit around $36.92 billion by 2030. For comparison, the global automotive manufacturing market was worth about $2.86 trillion in 2021. These numbers suggest that hydrogen-fueled vehicles will take a long time to be adopted on any significant scale. On the other hand, platinum demand for catalytic converters in automotive industry is projected to be about 3 million ounces this year.

Lastly, battery-powered electric vehicles are already becoming a fierce competitor to FCEVs with market revenue projected at $388.90 billion in 2022 and $846.70 billion by 2027.

Consequently, it is unlikely that hydrogen production and green transition are going to lend the platinum market a helping hand in short or medium terms. Instead, there are conventional and mundane applications of platinum that are essential for the market at this moment. 

Theodor Lisovoy for Rough&Polished