Platinum market deficit set to evaporate in 2016: WPIC
The platinum market deficit will shrink this year, before moving into a small surplus in 2016 as supply from mining and recycling rises and investment falls, the World Platinum Investment Council said in a report.
While the WPIC does not forecast prices, a move back to near-balance could further pressure platinum, which has suffered a 30 per cent drop this year, putting it on track for its biggest annual retreat since 2008. Mine supply, which rose 20 per cent this year as output from major producer South Africa normalised after last year’s five-month miners’ strike, is expected to increase another 2 per cent in 2016, largely on the back of gains in Zimbabwe, the WPIC said in its Platinum Quarterly report.
A 19 per cent drop in investment demand, to 130,000 ounces from 160,000 ounces, will also feed into the move into a slight surplus of 5,000 ounces next year, the WPIC predicted. That will counterbalance slightly higher demand for platinum from carmakers — who use the metal in autocatalysts — jewellers, and industrial consumers. “The balance is interesting,” the WPIC’s Trevor Raymond said. “Above-ground stocks are at an all-time low…and there is a bunch of sensitivities in 2016, most of which seem to be to the upside. There are wage negotiations in South Africa, potential safety stoppages, the impact of the much lower capital expenditure, corporate ownership changes, and whether autocat scrap comes back. On the demand side, we think China is stronger than people assume.”
In 2015 a drop in jewellery buying and rising mine supply has offset lower recycling and stronger automotive, investment and industrial demand to pull the market deficit back to 300,000 ounces, the WPIC forecast. In the third quarter the deficit expanded to 320,000 ounces from a surplus of 240,000 ounces a year before, though prices fell 16 per cent. They slid more than 10 per cent in September alone after the U.S. Environmental Protection Agency (EPA) said Volkswagen had cheated emissions tests on some of its diesel cars, sparking fears diesel sales could fall.
The WPIC said in its report that it assumes a limited impact on diesel auto sales, however, as consumer buying preferences do not appear to have been significantly affected so far. “While many commentators postulated that the scandal would inevitably mean a reduction in platinum demand, corresponding to fewer diesel cars, we do not agree,” it said. “We believe the consequences could include automaker, regulator and consumer actions that are as likely to lead to increases in automotive uses of platinum in the coming months and years.”