For the third consecutive quarter, platinum posted a deficit in Q4,2020 of -170 koz, as strong demand in automotive, industrial, and jewellery sectors and sustained strong investment demand for platinum outstripped constrained supply.
The World Platinum Investment Council (WPIC) has published its Platinum Quarterly for Q4,2020, which also includes a revised forecast for 2021.
Overall, despite a year that saw the global economy contracting by 3.5%, the platinum market deficit in 2020 was -932 koz, the largest on record. While total demand dropped by 7% (-569 koz), the sharp decline in mining supply of 20% (-1,203 koz) and the fall in recycling of 10% (-210 koz) contributed to total supply being down 17% (-1,413 koz).
Against a backdrop of widespread vaccine programmes seeing economies return towards normal activity, platinum demand is forecast to increase by 3% (+254 koz) to 7,992 koz, while supply will recover 17% (+1,126 koz) to 7,932 koz resulting in a deficit of -60 koz in 2021, the third consecutive annual deficit.
The demand growth in 2021 is expected to be driven predominantly by strong recoveries in automotive, jewellery and industrial demand, offsetting reduced yet very strong investment demand.
Resurgent automotive sector
Platinum automotive demand in Q4,2020 grew 5% (+31 koz) year-on-year due to a healthy recovery in light-duty and heavy-duty vehicle production. North America in particular saw platinum demand increase 17% (+13 koz), including strong growth in light-duty diesel vehicles, helping to offset declines in other parts of the world.
Heavy-duty vehicle production meanwhile saw a 7% increase globally, spearheaded by China increasing by 21%. Heavier PGM-loaded catalysts which are needed to fully comply with the fast-approaching China VI legislation, contributed to a 51% (+29 koz) increase in platinum demand from this region.
Light-duty vehicle production is expected to recover in 2021, reaching levels just below those seen in 2019.
Despite this slight shortfall, there is expected to be a 25% (+606 koz) increase in automotive platinum demand, mainly due to higher vehicle production, increased loadings to meet tighter emissions regulations and substitution of platinum for palladium in gasoline after-treatment systems.
Platinum investment demand stays high
In Q4,2020 investment demand was 63% (+51 koz) higher than Q4,2019 despite being 86% (-827 koz) lower than in Q3,2020, itself the highest quarterly total on record. Bar and coin net purchases more than doubled year-on-year, growing 112% (+32 koz) while ETF holdings added 74 koz during the quarter, up 56% on the prior year.
Investors continue to be very interested in platinum: its key roles in the hydrogen economy, to produce green hydrogen and its use in fuel cell electric vehicles, the accepted views of significant near-term substitution of platinum for palladium, and the substantial discount to both gold and palladium suggest strong future fundamentals.
While platinum investment, in bars and coins as well as ETFs, is expected to remain strong in 2021 – forecast to be above the 5-year average – it may not exceed the exceptional level seen in 2020. Platinum bar and coin demand is forecast to be 15% (-90 koz) lower, but still remain elevated. Overall, global net ETF investment holdings are expected to increase by 250 koz (c.50% below 2020).
Strong recovery underway in jewellery sector
Jewellery fabrication turned positive in Q4,2020, up 7% (+32 koz), with notable increases in demand in North America – the first year-on-year quarterly increase in 2020 of 4% (+4 koz) – and in China – the third consecutive year-on-year increase since Q1,2017 of 15% (+31 koz).
In 2021, total jewellery demand is expected to increase 13% (+234 koz) above 2020 levels, with improvements in every market as economic life returns and the worst of COVID-19 passes.
Paul Wilson, CEO of the World Platinum Investment Council comments:
“In a year of extremes, as 2020 was, we became accustomed to the term ‘record level’ in what we saw and read. Platinum’s record annual deficit and record investment demand in 2020 highlight platinum’s precious attraction as a hard asset during periods of high global risk, because of its deep discount to gold and palladium and due to its significant short- and long-term demand growth potential.
“Having endured the dark days of the pandemic and global economic slowdown, we are now considering the possibility of the world returning to normal. The positive momentum in the economic recovery of the latter part of 2020 is exhibited in the fact that activity has restarted, and platinum demand has rebounded in the automotive, industrial, and jewelry sectors.
“However, as we re-emerge from the pandemic, we now consider the role platinum has to play in global decarbonisation – one of the clearest global imperatives to emerge during the pandemic. Platinum is key to the production of green hydrogen and in fuel cells for electric vehicles, and this understanding among investors is rapidly increasing.
“As hydrogen availability rises and its production cost falls, due to accelerated global investment in decarbonisation, fuel cell vehicles are likely to require over a million more ounces of platinum per annum within 10 years. In addition, platinum’s rapidly accelerating substitution for palladium in auto-catalysts will require over a million more ounces of platinum per annum within four years.
“The combination of this substantive demand growth, combined with the rally in recent months, could well drive increased investment demand, for investors with both short- and long-term investment horizons.
“We continue to see an increase in the number of investors, who had not previously considered platinum, attracted by the strategic underpins to demand for this unique metal. When these investors take a closer look, they see that platinum’s deep discount to gold and palladium and compelling demand growth potential greatly enhance the likelihood of investment demand growth.”