HomeOpinionCeteris Paribus: Platinum prices to tank in the short-term

Ceteris Paribus: Platinum prices to tank in the short-term

By Eben Mabunda

THE latest statistics released by the World Platinum Investment Council (WPIC) on November 24 show an increasing supply of platinum globally in Q3 of 2021 vis-à-vis a declining trend in demand, signalling the possibility of subdued platinum prices as we get into 2022.

The quarterly WPIC report reveals a strong upward trajectory in the global platinum supply, and projections of the trend being sustained for the 2021 full year.

The basic economic laws of supply and demand are also applicable here as platinum prices are expected to tank in the short to medium term, in lieu of the fact, the platinum price is already down over 4,1% in 2021.

After having forecast a deficit for the year in May 2021, in September the WPIC switched from its earlier position; predicting a surplus of 190 000 ounces for the year.

The Q3 report now predicts a tripling of the September prediction, indicating a platinum market oversupply of 592 000 ounces, the biggest quarterly surplus in eight years.

According to the report: “Third quarter refined platinum supply was 7% (+101 koz) higher than in Q3’20, with 13% growth in refined mine production more than offsetting a 9% decline in recycling.

“The full year 2021 supply is forecast to rise by 19% year-on-year to 8,114koz, as steadily recovering mine production supplemented by ACP inventory unwind, more than offsets weaker recycling supply.”

Platinum demand hinges on its use in the automotive industry to neutralise harmful engine emissions as the green revolution gains traction. Jewellers and industries such as glassmakers and investors also demand the metal.

Influencing a 5% decline in the global demand for the metal is the raging chip shortage that has seen automakers cut on production. This has been compounded by the existence of huge stocks in exchange vaults in New York and for investors in exchange-traded funds (ETFs) all of which have resulted in a contraction in demand.

The WPIC predicted platinum supply would remain high next year against expectations that the production of the metal should fall in 2022 or 2023 after stockpiles in South Africa — the world’s largest platinum producer, are spent.

Demand for platinum is expected to decline for industry, ETFs, and jewellers and to increase for automakers and investors in platinum.

In the week ended Friday, November 19, platinum prices slumped 5% to close the trading week at US$1 035 an ounce as demand for the base metal decreased on the back of a strengthening US dollar. Platinum prices rose to a six-year peak of US$1 336,50 an ounce in February.

I, therefore, expect platinum prices to be dovish in 2022-23, opposing the trend of strengthening commodity prices, possibly weighing on platinum exports for South Africa, Russia, and Zimbabwe, the leading platinum producers globally.

In a fresh regional development, Glacier Lake Resources agreed to purchase the Kalahari Platinum Project in the Magisterial District of Vryburg (South Africa) from African Thunder Platinum. The firm will purchase a controlling stake in Stella Platinum and Greenstone Platinum, which jointly control the prospecting rights for the Kalahari project.

Zimbabwe, the third-largest platinum producer exported over US$866 million worth of nickel matte, which is a composition of platinum group metals (PGMs) during the January-August 2021 period, up 43% on the figure of the same period last year, data released by Zimbabwe Statistics Agency shows.

In contrast, using a monthly average of US$108 million meant that the country was well-positioned to go above the billion-dollar mark in PGMs export earnings this year.

By the first seven months of 2020, export earnings from the PGMs basket stood at US$605,7 million and this year’s dominant performance comes on the back of firm global commodity prices.

  • Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.net

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