by Edward Sterck, Director of Research, World Platinum Investment Council
The platinum market has entered a period of sustained deficits, with our supply and demand data estimating a record deficit of 1,071 koz for 2023, and a second consecutive deficit of 353 koz forecast this year. Beyond 2024, WPIC’s most recent Two-Five-Year Supply/Demand Outlook indicates further platinum market deficits continuing each year through to 2027.
Last year saw exceptionally strong year-on-year total demand growth of 26 per cent to 8,150 koz, far exceeding weaker supply, which dropped three per cent year-on-year to 7,079 koz, resulting in a substantial swing to a major market shortfall.
While this year will not see a repeat of the demand achieved in 2023, total demand is nevertheless expected to come in at 7,663 koz. While this is a six per cent year-on-year reduction, it nevertheless demonstrates resilience in the face of what is likely to be a continuation of the challenging economic environment of recent times and is expected to outstrip supply. Total supply is expected to show a modest three per cent growth, remaining well below pre-Covid levels at 7,310 koz, some nine per cent lower than average annual supply in the five years prior to 2020.
The stellar demand of 2023 was driven by buoyant automotive and industrial demand, which is expected to continue into 2024, albeit to a lesser extent. Last year, automotive demand for platinum grew by 14 per cent to reach 3,262 koz as a result of higher-than-expected vehicle sales alongside some 640 koz of substitution of platinum-for-palladium in gasoline vehicles and higher overall loadings, particularly in the heavy-duty and off-road vehicle categories. This year platinum-for-palladium substitution is expected to hit around 700 koz and will remain a key factor in overall platinum automotive demand growth, which is expected to be around two per cent, reaching its highest level since 2016 at 3,312 koz, despite an expected decline in production of internal combustion engine (ICE) vehicles from 78 million in 2023 to 77 million in 2024. The slowing in ICE production reflects battery electric vehicle (BEV) gaining market share, albeit we believe that the pace of BEV penetration is slowing.
Looking at automotive demand in relation to the palladium market, based on our research the market remained in an estimated deficit last year at 600 koz, with total demand of 9,796 koz and automotive demand of 8,107 koz, both essentially flat on the previous year.
The palladium market is set to record a further, albeit much reduced, deficit of around 106 koz in 2024, with modest total demand and automotive demand growth of almost one per cent and almost two per cent, respectively. Thereafter, looking through to 2027, we expect the palladium market to transition to consecutive and increasing surpluses, reaching a forecast 897 koz surplus by 2027, due to a 1.2 Moz increase in palladium recycling supply between 2022 and 2027.
Although there are risks to palladium recycling growth, assuming it is delivered as forecast and palladium enters a surplus from 2025, this would likely result in a reversal of current trends, with palladium being substituted for platinum in autocatalysts. Positively, this frees up platinum for use in rapidly-growing green hydrogen applications, meaning that platinum availability is less likely to be a bottleneck to the growth of this key energy transition technology.
Last year was the strongest year for platinum industrial demand on record, surging 14 per cent year-on-year to 2,652 koz, propelled by significant capacity expansions in the glass and chemical sectors. While industrial demand is forecast to fall 11 per cent in 2024 due to fewer capacity additions, it will nevertheless be the third-highest level on record at 2,367 koz and remains some 14 per cent higher than average industrial demand since 2013. The fact that the 2024 forecast for industrial demand still represents a compound annual growth rate of 3.7 per cent since 2013 demonstrates the benefit of the built-in resilience provided by platinum’s diversity of end-uses.
The platinum jewellery market continued to face headwinds in 2023, with demand declining three per cent year-on-year to 1,852 koz as growth in Japan and India was offset by weakness in the major China market, as well as North America. However, the ongoing reduction in jewellery demand is expected to stabilise this year, suggesting a floor has been reached, with a modest three per cent growth expected driven by India, Japan and China as the cost-of-living crisis abates.
Investment demand for platinum was estimated at 385 koz in 2023, a substantial improvement from negative demand of 640 koz in the previous year. In particular, bar and coin investment grew by 36 per cent to 305 koz, primarily due to a positive turnaround in Japan after three years of net disinvestment. Holdings in exchange traded funds saw net inflows of 50 koz.
The outlook for investment demand this year is more challenging and needs to be considered in the context of the prevailing high interest rate environment that has weighed on demand for non-yielding assets. A negative 170 koz swing in ETF flows and a drop in bar and coin investment to 172 koz is expected. Overall, investment demand will stay in positive territory at 82 koz, and we believe there may be the potential for upside should interest rates begin to fall more quickly than our forecast anticipates, or investors find consecutive deficits an incentive to increase holdings.
Supply constraints in mining and recycling persist. Global platinum mine supply was more-or-less flat in 2023 at 5,608 koz, remaining around eight per cent below the five-year pre-Covid average production level. Challenges remain, such as the potential for a worsening of the electricity shortage in South Africa, but investment in processing infrastructure, as well as asset optimisation, have seen the negative impacts of this largely contained so far.
For 2024, platinum mine supply is forecast to grow three per cent year-on-year to 5,743 koz, with a five per cent improvement in South African output expected. However, this modest growth could well be eroded should miners continue to reassess production plans and restructure operations in response to continued pressure on the platinum group metal (PGM) basket price after significant declines in the price of both palladium and rhodium.
Global platinum recycling fell to 1,471 koz in 2023, 13 per cent below the already reduced level of the prior year, due primarily to a shortage of end-of-life vehicles as consumers are driving existing vehicles for longer and as scrappage yards accrued spent units in the face of weak PGM prices. While global platinum recycling is expected to increase by seven per cent to 1,567 koz this year, downside risk remains should these trends continue.
Looking further ahead, platinum stands to benefit from an emerging new demand segment as its use in the hydrogen economy grows; last year electrolyser demand alone grew by 250 per cent, albeit from a very small base. This builds on platinum’s established economic importance due to the role it already plays in terms of reducing energy consumption and harmful emissions, not only through its use in autocatalysts, but also in industrial applications. By 2030 demand from platinum’s use in fuel cell electric vehicles (FCEVs) and electrolysers will be meaningful, and by 2040 it could potentially be the largest segment of platinum demand.
