Stars aligning for platinum price

Platinum futures trading on the Nymex market in New York were in retreat last week but at $1,065 an ounce year to date platinum remains up more than 22%  thanks to predictions of another annual market deficit and the threat of labour action in top platinum producer South Africa which is responsible for 73% of global annual supply.

In its latest quarterly report the World Platinum Investment Council adjusted the supply deficit forecast for 2016 upwards by 16% or 65,000 ounces to 520,000 ounces, from 455,000 ounces previously, mostly on the back of lower than expected recycling growth. 2016 is set to the fifth annual year of market shortages for platinum, used mainly in jewellery and autocatalysts.

Positive sentiment has reduced the propensity of holders to sell platinum to meet deficits

Total demand for 2016 was expected to increase moderately year on year to 8.25m ounces. Total investment demand is forecast at 350,000 ounces, up 45,000 as bar and coin demand remains strong and after ETF net sales tapered in the first half of the year. Automotive demand is expected to be largely static as is jewellery demand – up 5,000 ounces on 2015 – buoyed by growth in India, the US and Western Europe offsetting declines in China and Japan, according to the WPIC.

Stars aligning for platinum price

Source: WPIC

Total mining supply was forecast to fall 3% to just under 6m ounces. Annual supply from South Africa has fallen from a peak of nearly 6 million ounces a decade ago to an expected 4.2 million ounces this year.

A significant factor that has been putting a lid on price rises is the amount of above ground stocks of platinum (usually vaulted investor holdings), but the WPIC says these have more than halved over the five years of supply deficits and is expected to have dwindled to 1.87 million ounces this year. The authors of the report note that “positive sentiment has reduced the propensity of holders to sell platinum to meet deficits.”

South African mine production figures for July released today showed PGM output fell by 10.8% compared to June and 8.2% year on year as miners close down unprofitable mines and safety stoppages halt operations.

Last week South Africa’s top labour union for mineworkers in the industry said no deal was reached after more than a month of talks. The Association of Mineworkers and Construction Union (AMCU) declared a dispute on wage negotiations with the top three global producers Anglo American Platinum, Impala Platinum and Lonmin which together account for 60% of global platinum output.

AMCU led a bruising 20-week strike in the first half of 2014 that lit a fire under platinum prices after some 1.3 million ounces of production was lost.