Platinum price pressured as market moves into oversupply

On Wednesday, the price of platinum took a breather from its recent rally but managed to stay above the $1,000 an ounce level and in positive territory for the year. Platinum, down 10% compared to this time last year, is underperforming the precious metals complex and specifically palladium which is sporting 2017 gains of more than 37% and looks set to top its sister metal for the first time since 2001.

A new report by the World Platinum Investment Council (WPIC) shows the platinum market moved back into surplus during the second quarter as a rise in refined supply (despite a 9% dip in mine-level output) and a drop in automotive and industrial demand erased the previous quarter's 305,000-ounce deficit.

It is encouraging to observe the continued resilience of platinum demand from the automotive sector, which is counter to many negative commentaries on the sector

WPIC is still predicting a small platinum market deficit for the whole of 2017, but the industry body expects the market to be broadly in balance compared to earlier predictions of a 120,000-ounce deficit this year.

Following a 2016 deficit of 270,000 ounces, 2017 would be the sixth consecutive year that global platinum consumption has outstripped supply primarily as the result of declining mining output and low prices discouraging recycling:

Overall supply is expected to contract further in 2017, due to closures of uneconomic mining at current market prices, with total platinum supply expected to decrease by 2% year-on-year to 7,795 koz. Secondary supply is forecast to slip by 3% when compared to 2016, with a reduction in jewellery recycling outweighing increased autocatalyst recycling.

On the demand side of the equation, conditions remain lacklustre. Nevertheless, it is encouraging to observe the continued resilience of platinum demand from the automotive sector, which is counter to many negative commentaries on the sector. The full-year forecast for the segment is 3,360 koz, down just 2% on 2016 (3,435 koz) and very close to overall automotive demand in 2015 and 2014, despite a further reduction in diesel market share in Western Europe.

A bright spot for the platinum market is continuing strength in investment demand. Global investment demand came in at 90,000 ounces during Q2 with bars and coins and exchange-traded funds seeing gains, while exchange stocks remain unchanged. This marks the sixth consecutive quarter of positive investment demand according to WPIC and "indicates that overall investment growth in 2017 is likely to be greater than expected."