(Kitco News) - It could only be a matter of time before platinum prices start to rise as the precious metal is expecting to see a massive supply deficit this year continuing into 2021, according to the latest research from the World Platinum Investment Council (WPIC).
In its latest third-quarter market report, the council said that platinum is facing a supply deficit of more than 1 million ounces this year as mine supply cannot keep up with growing demand. Looking at next year, the platinum market could see a supply deficit of more than 200,000 ounces.
“Despite the strong quarter-on-quarter recovery in mine and recycle supply, the stellar rebound in automotive demand and sustained strong investment demand for precious metals, including platinum, lifted Q3’20 platinum demand well above supply,” the WPIC said in a press release.
The report said that the total platinum supply in Q3’20 was down by 5% from Q3’19; however, the decline is relatively modest compared to the 36% drop in Q2’20. Meanwhile, total mine supply grew by 4% in the third quarter, compared to 2019. However, mine supply is expected to fall 21% this year.
“Despite the strong recovery of supply and demand in the third quarter of 2020, when compared to the second quarter, overall weak supply and very strong investor demand were the main contributors to the -709 koz deficit in the quarter,” the report said.
Similar to gold and silver, the platinum market has seen unprecedented investor demand this year. According to the report, third-quarter investment demand rose by 730,000 ounces, a 291% increase compared to last year. Investment demand included a 42,000-ounce increase in coin and bar. The WPIC said that physical bullion demand is expected to rise 123% compared to 2019.
Trevor Raymond, director of research with the World Platinum Investment Council, said that many investors continue to watch the platinum market as they evaluate the precious metal’s long-term supply and demand fundamentals.
He added that the biggest surprise for him in the third quarter is that the price hasn’t reacted to the growing imbalance in the marketplace. Although platinum has seen a sharp recovery from the March selloff, the price remains stuck below $1,000 an ounce. January platinum futures are caught in a tight range between $850 an ounce and $950 an ounce.
Raymond added that he expects that it is only a matter of time before platinum prices react to the tightening supply. He said that platinum currently remains an undervalued asset in the commodity market.
“I think more investors will be paying attention to platinum as they look for value outside of the stock market,” he said. “Copper prices are running higher, gold is running, silver is running and it won’t be long before its platinum starts to move.”
Whether the platinum market can sustain its current pace of growth, especially when it comes to investment demand, Raymond said that the market still has plenty of room to move higher. He added that platinum will play an essential role in developing green technology, particularly hydrogen-powered vehicles.
“Last year, when EFT demand reached a million ounces, investors were saying that wasn’t sustainable, but ETF demand continues to grow,” he said. “You don’t need much investment demand to have an impact in platinum. From a long-term perspective, the market is far from saturated.”
But the platinum market is more than just investment demand. Raymond said that platinum’s industrial component should also provide critical support for the precious metal through 2021. With news of potential vaccines for the COVID-19 virus, there is hope that the global economy will see a faster than expected recovery.
“People are starting to think about traveling again in vehicles and plans and those engines will be using more platinum,” he said. “Platinum remains the cheapest option when it comes to reducing emissions.”
While demand is expected to remain healthy, Raymond said that supply will continue to be an issue. He explained that in 2021 the platinum market will continue to feel the effects of a converter plant outage in the first half in South Africa. The outage removed nearly 900,000 ounces of supply this year.
Raymond added that it will also take a few years for mines to restart production cut in the last few years due to low prices.
“The risk for South African platinum supply growth in 2021 is very low, but demand growth remains very interesting,” he said.