Global platinum output to dip 8

By Eben Mabunda | Sep. 9, 2022

World Platinum Investment Council

THE latest statistics released by the World Platinum Investment Council (WPIC) on Monday project a decline in the production of platinum globally for the year 2022 versus the 2021 outturn, dragged by anticipated declines in recycled supplies and leaner production in South Africa, Russia and Zimbabwe.

This is on the back of waning production numbers witnessed in the second quarter of 2022 wherein global platinum supply narrowed -7% over the period in question.

According to the report: “Platinum supply was also weaker at 1 961koz (-7%) year-on-year, albeit not by enough to offset lower demand. 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. 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.”

Meanwhile, recycling was down 16% year-on-year at 437koz due to reduced vehicle scrappage rates impacting the supply of raw material.

However, aggregate platinum demand declined 13% (-248koz) year-on-year in Q2 2022, with stronger industrial and jewellery demand offset by slightly weaker automotive demand, and significantly weaker investment demand (-329koz). 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.

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

The WPIC said they expect automotive demand for platinum to increase 14% this year to more than three million ounces. However, total industrial demand is expected to fall 15% to 2,132 million ounces. This is expected to generate an overall market surplus of 974koz, up from 627koz previously and 10% below the 2021 surplus.

Notably, platinum-backed exchange-traded funds have weighed on prices; however, despite the growing surplus, there is still tautness in the markets.

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“Significantly, the sustained high platinum lease rates we have been seeing throughout 2022 — the highest in 10 years and higher even than those seen during the peak of the pandemic when moving materials was extremely challenging — are a clear indication of shortages of physical metal in the market,” reads the report.

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

For the year, the report said the total surplus is expected to increase to 974 000 ounces, up from the previous estimate of 627 000 ounces. An 11% drop (y-o-y) in recycling supply (-217koz) is expected, premised on reduced autocatalyst scrap availability. Investment demand is projected to dip -520koz y-o-y on continued ETF and exchange stock outflows.

Although platinum is expected to see a significant surplus this year by the WPIC, Chinese demand remains a major wildcard and an important reason for tightness in the market.

Remarkably, despite major market shifts, platinum has managed to hold critical long-term support at around US$800 an ounce with the WPIC indicating that solid demand is expected to provide some support for the precious metal.