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The platinum surplus in 2021 is forecast to reduce by 47% in 2022 as Covid-related and operational disruptions gradually settle, the World Platinum Investment Council (WPIC) states in its Platinum Quarterly.

Covering the fourth quarter of 2021, along with a full year review of 2021 and revised forecast for 2022, the WPIC’s Platinum Quarterly states that Covid–related factors and operational disruptions played out particularly during the second half of 2021, having a huge impact on both the supply of and demand for platinum.

Despite significant demand growth in most sectors, strong supply levels – boosted by a production surge from the accelerated processing of the backlog of semi-finished material – combined with the reduction in Nymex stocks and net negative exchange traded funds demand saw a platinum surplus of 1 232 000 oz, with total platinum supply increasing by 21% and total demand decreasing by 9% year-on-year.

As these issues normalise in 2022, this surplus is forecast to reduce by 47% in 2022 to 652 000 oz, as demand increases 7% (+520 000 oz), while supply declines 1% (-61 000 oz).

The quarterly refers to the role of green hydrogen as being more widely accepted for decarbonisation, which has benefits for platinum owing to its use  in both electrolysers to produce green hydrogen, and in hydrogen fuel cells.

It reports that investors are becoming increasingly aware of platinum’s key strategic role in unlocking hydrogen’s crucial contribution to achieving global net zero targets.

Furthermore, the role of green hydrogen in reducing European gas imports could drive a strategic acceleration of electrolyser construction, which would benefit platinum directly but also support the infrastructure needed for broad-based commercial adoption of fuel cell electric vehicles

A notable point is that 20% of green hydrogen into the existing gas infrastructure would halve Europe’s reliance on Russian gas, now of key concern owing to Russia’s invasion of Ukraine.

There are also early indications that supply disruption of palladium from Russia may well enhance platinum demand.

Imports into China have exceeded the Asian giant’s visible demand needs with unwrought platinum alone amounting to 2.75-million ounces, an increase of 45% on the already elevated levels in 2020 – and more than twice the average annual flows over 2016 to 2019.

Increase in platinum supply in 2021 is forecast to plateau in 2022, as the last of additional semifinished material is processed.

Significant rises in automotive (+11%), industrial (+27%), and jewellery (+5%) demand in 2021 set to remain strong in 2022.

Your Platinum Quarterly release mentions Covid-related and operational disruptions in 2021 that have had an effect on supply – can you describe more specifically what these have been, and why they are likely to settle in 2022?

Raymond: We had two real issues that played out in 2021. Firstly, we saw operational disruptions due to Covid in 2020, and those were less so in 2021. But certainly there was some operational impact – absenteeism, etc – so supply was reduced slightly at the at the mining level. The second big issue that played out in 2020, you’ll recall that the Anglo American Platinum’s converter was offline for a couple of months earlier, and then later in the year. That resulted in quite a large backup of about 560 000 oz of platinum. We saw, they’re starting to come out in 2021. But it really accelerated towards the end of the year, and by the year-end, that was almost all processed. What we had was mining still at levels potentially a little bit below pre-Covid levels, but a massive boost to refined production that came out, and a lot might have assumed that the high margins being made by the platinum group metals miners caused that, but it was actually a the release of that material that had built up. We think there’s still a little bit, about 150 000 oz, locked up in the process pipeline that should come out in 2022. But certainly that boost is gone and we’re seeing mining refined supply at more normal levels.

Since Covid restrictions have been lifting throughout 2021, what was the effect on platinum demand, particularly in the industrial sector?

In 2021, we saw massive demand from the glass manufacturing sector. The expansions that were planned in 2020, many of those were moved into 2021, and certainly they did happen. So you had this massive increase in demand as the capacity for both liquid crystal display (LCD) glass and a lot of glass fibre, particularly in China, was put in place. That’s largely run its course, and you’ll see some of that glass demand getting back to much lower levels in 2022. Then you’ve had things like petroleum that were heavily affected. In 2020, global use of gasoline was significantly down. That picked up during the course of 2020, and certainly we saw, for example, petroleum demand coming back. I think those trends will filter through to 2022. Obviously, there’s a lot more uncertainty at the moment, but certainly strong industrial demand in 2021 is likely to be a feature in 2022 as well.

In the automotive sector, the shortage of semiconductors has had a considerable impact on platinum demand – when is this likely to be resolved and what will that mean for long-term platinum demand?

It’s certainly the impact on automatic production was quite severe. I think we saw almost 10-million fewer light vehicles produced in 2021, and the estimate for 2022 is about a seven-million less. That’s 17-million light vehicles that didn’t get produced and that had a massive impact. A lot of it was on palladium because globally, most vehicles on gasoline, and certainly an impact on platinum. You might have expected that huge reduction in the number of vehicles produced to play out heavily in platinum automotive demand, and in fact, we saw the converse – we saw demand growth in the automotive sector for platinum demand in both 2021, and we’re forecasting another significant rise in 2022. The reason is that there  is much higher loadings per vehicle, as new emissions regulations are brought in, particularly Euro 6D and China’s 6A and 6B. In addition, we’ve had a lot of platinum substituting palladium. Both of those effects have offset the huge reduction in vehicles produced. As a result, we’ve had a growth in platinum automotive demand. In terms of how that plays out, we do know that there’s strong pent-up consumer demand. We’ve seen a massive increase in the price of second-hand vehicles. Also, we’ve seen the automakers reduce the inventory in their distribution networks. We believe as those things start to be resolved, and certainly they were being resolved until recent events, is that there’s a certain pent-up demand. So, automakers are likely to produce more vehicles to meet that demand and also to fill their distribution stocks. So, certainly, as any easing occurs, we could see quite a significant increase in vehicle production. That would be at much higher loading levels and with ongoing substitution, so certainly the potential for significant and quite short-term quick growth in automotive demand.

To what extent have imports into China had an effect on market dynamics?

That’s probably the most interesting aspect. We flagged this in November that imports into China were particularly strong. What we saw, particularly in the last three quarters of last year, is that imports of platinum into China were significantly higher than identified platinum demand in China. Over those three quarters, the amount of that excess import was over 1.3-million ounces more than China’s platinum demand. We have had confirmation that a lot of that is associated with speculative or quasi speculative holdings. We’ve seen this before, you might recall, both in 2014, when we had a significantly long strike in South Africa and also 2008 and 2009, when there were concerns about availability. What tends to happen is people in the supply chain, manufacturers that use platinum to make industrial goods such as bushings to produce glass fibre, or even jewellery manufacturers, they increase the stock their levels, but often, quite significantly, by a multiple of their stock levels. That’s a speculative view, but it’s a fairly low risk for those participants, because the price goes up, that’s great. They have made quite a turn and getting them at lower levels makes a lot of sense. If the price stays where it is, there’s really no last thing because they’ll take that metal, and they’ll turn it into product down the line. What we also know is that metal going into China tends to stay there. The export of refined platinum and palladium out of China isn’t currently permitted. What we have seen is that amount of platinum that went into China – over 1.3-million ounces – absorbed the entire surplus. We’re publishing the surplus today of just over 1.2-million ounces. That’s the biggest surplus in platinum we’ve ever published. Yet we’ve got this conundrum that China has actually used that up but it doesn’t appear in our supply demand data. We saw the evidence – the increased lease rates, and the rundown of Nymex stocks. People that were unable to get metal, were choosing to take stocks out of Nymex inventory, and use that to satisfy demand for physical. We see that continuing right now. We don’t yet have the China import data for January, but it certainly looks like that elevated lease rate and the reduction in Nymex stocks suggests that China continues to import more than it uses. A very big driver that puts a bit of a contradiction into a market that’s in massive surplus, yet tight.

2021 saw a big change in investment demand – could you explain this and give your thoughts on how this might change again in 2022?

We saw in 2019 and 2020, significant growth in platinum exchange traded fund (ETF) investments of over 1.5-million ounces in those two years. We’d done a lot of work several years ago to get a lot more stock from the refiners in Switzerland into the bar and coin distributors into the US. During Covid, we saw that massive nearly half a million ounces of bar and coin, very strong bar and coin in 2021, and we think that bar and coin strength is likely to continue. However, in ETFs, in 2021, we did see that those holdings reduced by over 230 000 ounces, and we also saw those Nymex stocks being drawn down. That reflects in our supply-demand numbers as negative investment demand, or a reduction in investment demand, and that’s interesting, because it’s the issue that I’ve described, related to the China imports. What we also noted is that a lot of the reductions, many of the South African funds are very long platinum, what they were doing was rotating out of the ETFs into the mining equities. We flagged that strategy, and almost it seems to have been confirmed is a very sensible strategy. We’ve seen massive dividend declarations from those mining companies. In terms of where it went, we had this massive drop in investment demand and where it’s likely to go, we’re forecasting a modest 50 000 ounces for investment demand in 2022, but we do know the potential to rotate out of those equities back into the metal occurs. What we have seen is that as these platinum mining companies go ex-dividend, that there is a greater likelihood for those people to switch back. The other interesting thing is that we noticed that the influence of investment demand when you’ve got a tight market certainly makes investment demand growth more relevant to price discovery.

Given the developments in the sad Russia-Ukraine conflict, what are the possible impacts on the market balance for platinum?

I agree absolutely. it’s sad to see the Russian invasion of Ukraine, and recent market prices have sort of indicated the level of concern. We know that Russia supplies about 10% of globally managed platinum, compared to 40% for palladium. Obviously, the concern is much more acute regarding palladium supply out of Russia. But even so 600 000 ounces of platinum comes out of Russia, and we expect a short-term disruption to that, associated with sanctions. That comes at a time when we’ve got this incredibly tight market. I think the concerns are there, I think the investor interest is extremely high. We think that the shortage of palladium is likely to encourage additional or accelerated substitution of platinum for palladium, even though we think over time, commodities markets tend to be quite efficient, and the amount of the amount of palladium produced by Russia is pretty similar to the amount of palladium that is consumed by China. We think there is a bit of a deficit that certainly could be alleviated by substitution, and that will take time. In the in the short term, we’re likely to see a lot more volatility in markets are certainly reflecting that right now. Then in the long term, if more green hydrogen can be produced, you could put 20% of green hydrogen into the existing gas infrastructure, and that would halve Europe’s reliance on Russian gas. I think longer term is certainly a boost to the importance of green hydrogen. and that’s always good for platinum in the production of green hydrogen, and certainly in fuel cell electric vehicles. So, I think a lot of short term volatility, certainly some potential long-term benefits as well.

The WPIC is a global market authority on physical platinum investment, formed to meet the growing investor demand for objective and reliable platinum market intelligence. WPIC’s members are Anglo American Platinum, Impala Platinum, Northam Platinum, Royal Bafokeng Platinum, Sedibelo Platinum and Tharisa.