【Industry Insight】If the rand strengthens, platinum prices will have room to move up

    By 2023, the industrial platinum market is expected to be oversupplied, with a surplus of more than 400,000 ounces. This is in part due to the fact that inventories accumulated in 2022 have been processed. Total demand for platinum is expected to rise as the gains from replacing palladium in gasoline auto catalysts outweigh the expected decline in jewelry and industrial sector uses. investment demand has been more subdued in 2022, with ETF holdings falling sharply. If the volatility in platinum prices gives way to a clearer uptrend, then investment could improve next year.

Primary platinum supply is expected to grow by 6% to 6 million ounces in 2023. Production has been boosted by the release of backlogged in-process stocks due to deferred maintenance at South African smelters in 2022. This is expected to raise South African production to pre-New Crown outbreak levels. If South Africa's national power utility (Eskom) remains unable to resolve power supply issues, then platinum production is likely to be lower than expected.

    The acquisition of Royal Bafokeng Platinum (RBP) has not yet been finalized, but the change in ownership is unlikely to affect production in 2023. Production in Zimbabwe could also increase due to increased production from Zimplats. North American production is expected to rise modestly in 2023 following production cutbacks in the U.S. and Canada earlier this year when production was halted. In addition to this, Russia's platinum production is expected to decline next year as mine productivity is affected by sanctions against Russia that have prevented the import of Western equipment and replacement parts. Russian platinum group metals are expected to continue to enter the market, but are at risk of being sanctioned.

    Secondary supply is expected to decline slightly next year. Weak demand for jewelry is expected to lead to lower jewelry recycling rates due to a reduction in the volume of second-hand jewelry transactions. Little change is expected in platinum recovered from spent auto catalysts next year. This year's semiconductor chip shortage has limited new light vehicle production, resulting in higher demand for used vehicles and lower than normal scrap volumes. The impact of the chip shortage may gradually ease next year, and sales of light-duty vehicles are expected to rise, which will lead to an increase in the number of older vehicles scrapped. The U.S. and Europe are expected to fall into recession, which will also offset this impact by extending the life of older vehicles to some extent.

    Global automotive demand for platinum is expected to grow by 14 percent to more than 3.3 million ounces by 2023. Light vehicle production is expected to rise modestly next year as the various supply chain constraints that have constrained production this year are gradually overcome. However, the increase in platinum demand is mainly due to the widespread use of catalysts for gasoline vehicles, some of which have been replaced with platinum. Europe's diesel passenger car market share continues to shrink, and with it demand. However, global heavy-duty vehicle production is expected to increase next year, which will help boost platinum usage.

    Platinum use in the industrial sector is expected to decline by 3% next year, mainly because demand from the glass industry has returned to previous levels after a very strong year in 2022. Fewer new glass production facilities are expected to be built next year. Oil demand is also expected to decline next year due to the closure of some smelters. Medical and other demand is expected to be little changed, but chemical demand is expected to rise slightly, mainly due to the construction of new chemical plants in China. Continued expansion in the corporate market will also boost electrical demand, supporting hard disk demand. The use of platinum in the hydrogen economy is expected to expand due to the increasing number of proton exchange membrane (PEM) electrolyzer installations.

    Demand in the jewelry sector is expected to decline by 7% in 2023. New crown epidemic controls and a weak economic outlook in China impacted demand in 2022, and this is likely to continue in 2023. In addition, the U.S. and Europe are expected to experience recessions next year and jewelry demand is expected to be lower as a result.

    Weak demand from the overall investment sector in 2022 may eventually become a source of supply. Demand for platinum coins has been strong, but demand in Japan, the world's largest platinum coin market, has been weak as investors have sold off some of their coins and taken profits as the local gold price has cyclically exceeded 4,000 yen per gram. To date, ETFs have reduced their holdings by more than 500,000 ounces in 2022, for a total global position of just over 3 million ounces. All countries and regions around the world are selling ETFs, with the UK fund seeing the biggest drop.