According to the World Platinum Investment Council’s (WPIC) second ever Platinum Quarterly report, global platinum demand outstripped supply by 700 000 ounces in 2014. This was the third consecutive year-end deficit, which was exacerbated, this time around, by a five-month long platinum belt strike in South Africa, said WPIC CEO Paul Wilson.

“We also looked at a full year forecast for 2015 and, while all the fundamentals are strong, we expect another deficit (235 000 ounces),” said Wilson, adding that the shortage hadn’t been reflected by an inflation in the platinum price because producers had been able to draw on previously built inventories to satisfy some of the demand.

This is illustrated in the report, where above ground platinum stocks are shown to have been substantially depleted, sitting at 2.76 million ounces and down by a third from 4.16 million ounces in 2012.

Total mining supply in 2014

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Source: WPIC Platinum Quarterly Q4 2014

Overall demand, according to the report, fell by 6.9% in 2013 to 7.92 million ounces, even though there was demonstrable growth in the automotive, jewellery and industrial demand segments. WPIC research director Trevor Raymond said this was largely because investment demand fell 790 000 ounces due to the smaller uptake of the first rand-denominated platinum ETF, which was introduced in 2013 and performed remarkably in that year.

Changes in 2014 platinum demand

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Source: WPIC Platinum Quarterly Q4 2014

The role of the WPIC is to develop the platinum market, specifically for investment, by guiding perceptions about the value-creating facets of the precious metal. In comparison to gold, Wilson said platinum was lagging far behind in terms of being viewed as an investment asset but pointed out that its performance, in recent years, was comparable to that of the yellow metal.

Said Wilson: “Gold has the advantage of already having been viewed as an investment for the last 5 000 years. But if you look at the real performance over the last 20 years, there hasn’t been much of a difference between the two metals. It will take some time for people to get familiar with platinum as an investment asset, but we believe that there is tremendous potential for that.”

Platinum’s prospects

The Platinum Quarterly states that Western European demand for platinum more than doubled as the share of diesel cars with platinum-rich autocatalysts rose from close to 30% of the passenger car market to over 50%, but that much of this demand is met by recycled platinum.

The global recycling of platinum was 2% higher in 2014 at 2.03 million ounces, the majority of which was recorded in Europe where more than over 50% of autocatalysts came from scrapped cars manufactured between 1999 and 2005.

Platinum for jewellery is also often recycled but this figure is negated, particularly in China, when people use the money to fund purchases of new pieces.

The relative change in demand for each platinum end-user is highlighted in the diagram below, which shows an increase for most categories.

In 2015, automotive demand for platinum is forecast to rise by 4% to 3.37 million ounces, while jewellery and investment demand are expected to rise by a 3% and 9% to 3.09 million and 1.7 million ounces respectively.

End-user demand (2013 vs 2014)

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Source: WPIC Platinum Quarterly Q4 2014

And, although a global deficit is still expected in 2015, there will be some correction in the market as South African production is forecast to recover to above 4 million ounces this year.

Output from Zimbabwe should also increase while Russian producer guidance is 7% down at around 690 000 ounces. North American output is expected to be stable at 385 000 ounces.

“What we will be doing in the coming months is providing the investment picture for platinum. That is, how well it has appreciated over the years, and how good an option it is for (the portfolios of financial institutions),” said Wilson.