The increase in industrial demand comes at a time when South Africa's supply side is affected by power shortages
According to an article in the Financial Times on Tuesday 16 May 2023, the platinum market is expected to record a deficit this year due to supply problems in South Africa and industrial expansion in China. Global demand for platinum is expected to rise by 28% to 8.2 million ounces, driven by strong industrial consumption and increasing use of the metal in catalytic converters in cars. This has led the World Platinum Investment Council (WPIC) to revise its deficit forecast upwards by 77% from three months ago to 983,000 ounces this year, which would be a record since the 1970s.
Platinum prices have risen about 20% since their February low, reaching $1,080 an ounce, above the five-year average of $940 an ounce.
The platinum shortage marks a dramatic turnaround from the glut of the previous two years, when automotive production was affected by semiconductor shortages.
Platinum is used in catalytic converters in cars to reduce harmful emissions, and in fibreglass for wind turbines, electronics and petrochemical plants. Although industrial demand is supported in the short term by CO2 emissions legislation, there are uncertainties about the emerging demand from the hydrogen economy and the phasing out of combustion vehicles. According to WPIC, industrial demand is expected to be the highest ever for platinum in 2023, driven by chemical and glass expansions in China, as well as the continued substitution of platinum for palladium in automotive exhausts. However, forecasters differ on WPIC's optimism and predict more moderate demand growth, but still a shortfall of around 130,000 ounces this year.
While sufficient stocks have been built up to meet demand, the depletion of these stocks is likely to lead to higher and more volatile prices. However, a seismic shift has occurred with around 85% of stocks held in China, where they are captive, compared to less than 5% four years ago. Of the six metals in the platinum group, which also include palladium, rhodium and iridium, many analysts believe that platinum's prospects are the most promising due to its use as a catalyst in hydrogen fuel cells and electrolyzers.
As an investor, buying platinum bullion can be an excellent portfolio diversification option. In addition, the growing trend towards platinum-backed ETFs, supported by a physical holding of the metal, indicates increased investor interest. Platinum also offers long-term potential as a catalyst for hydrogen technologies and electrolysers.
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