Platinum demand continued the steady year-on-year in Q3 2021

Platinum demand for the total of automotive, jewellery and industrial applications in the third quarter of 2021 continued the steady year-on-year quarterly recovery seen since the fourth quarter of 2020. However, this demand declined by 4% from the second quarter as semiconductor shortages reduced automotive demand, and weaker industrial demand was not offset by stronger jewellery demand.

However, the greatest change in demand in quarter three was due to outflows from ETFs and stocks held by exchanges, resulting in total platinum demand pulling back 44% year-on-year. This, in combination with higher refined supply, up 13% year-onyear as accelerated processing of the 2020 semi-finished stock overhang continued to boost underlying South African mine supply, resulted in the quarterly surplus of 592 koz.

These developments have contributed to the increase in the platinum surplus now forecast in 2021, up from 190 koz to 769 koz. Whilst this is a significant surplus, China imports have run well ahead of demand, potentially absorbing much of the excess metal supply, and resulting in reduced metal availability in the market.

While many of the trends that have dominated 2021 are expected to continue into 2022, the degree of uncertainty associated with each varies. There is high confidence in both the expected growth of 1% in total mining supply for full year 2022 – which includes the boost from processing the final tranche of the stock overhang – and the expected reduction in industrial demand of 13% from the exceptional levels seen in 2021.

Less certain, is the extent to which processing capacity limitations may curb the growth in autocatalyst recycling later in the year, and the extent to which vehicle sales and production will rebound as the semiconductor shortage is resolved.

Similarly, growth from increased platinum loadings under tighter emissions regulations and the amount of platinum substituted for palladium may rise materially. Regarding investment demand, it is uncertain whether outflows from ETFs and exchange stocks will continue.

Base-case forecasts for the areas of supply and demand uncertainty potentially err towards the conservative. They assume: the semiconductor shortage will continue to reduce vehicle production; automotive recycling supply will be sustained despite lower scrappage rates; relatively low rates of platinum substitution for palladium; low PGM loadings in China relative to other regions; and continued negative demand from both South African ETFs (rotating into PGM equities) and exchange stocks.

This results in a projected surplus in 2022 of 637 koz platinum. While this is a significant figure, demand upside, where forecasts are less certain, could reduce it materially. In particular, cessation of the outflows from South African ETFs and Stocks Held by Exchanges would reduce the forecast surplus by 250 koz, and we estimate that each additional million vehicles produced above current estimates would reduce it by 35 koz.

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