WPIC discusses the 'structural deficit' in Platinum.

Inelastic supply and demand mean that structural deficits such as we are currently observing tend to be persistent, leading to large price adjustments.

• World Platinum Investment Council Director of Research, Edward Sterck, published an article earlier today (HERE) on the ‘Structural Deficit’ in the platinum market.

• This article explains the Council’s view on supply and demand dynamics and its investment implications, with the article reiterating points I made in a Substack about a month ago (HERE).

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“There is growing appreciation of the extent to which platinum’s strong supply/demand fundamentals, resulting in the structural deficit, are underpinning its compelling investment case.” Edward Sterch

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Today’s comment from Mr Sterch comes as Platinum makes a new multi-year high.

Edward’s article is only around 975 words and will take less than four minutes to read. Consequently, I will only make a few observations of the salient points.

On supply…

Miners spent most of 2024 restructuring assets and reducing capital expenditure in response to low prices for the Platinum Group of Metals; total mine supply is expected to fall below 7Moz this year, which is the lowest level in the WPIC’s data set since 2013 (outside of the pandemic).

…demand…

The WPIC estimate that demand will also be subdued - although this depends in large part on investment demand - with core demand constrained by a cyclical downtrend in the glass manufacturing industry.

Beyond this, platinum is benefitting from substitution effects in the jewelry market away from gold - notably in China - while in Europe and North America, platinum is making inroads into the white gold market (it makes no sense to buy rhodium plated gold when platinum is a significantly cheaper, and more durable, alternative).

Conversion of the global automotive fleet from internal combustion to battery electric vehicles will result in a reduction in platinum demand, but the intermediate step to hybrid electric vehicles is supportive and the WPIC anticipates auto-catalyst demand will remain ‘higher-for-longer’. I’d add that there’s an offsetting effect from reduced auto-catalyst recycling, that progress in conversion of the heavy transport fleet (which uses diesel engines and is a heavier user of platinum) is unlikely to convert rapidly to BEV, providing a long-tail of demand.

While the WPIC is cognizant of the potential drag on demand arising from US tariffs, they note “the scale of the platinum market deficit is so significant that it is difficult to envisage a scenario that would materially reduce it.”

…and the balance.

Platinum is likely to post its third successive year of supply deficit this year, with the WPIC estimating the deficit at 966koz. Above-ground stocks are estimated to fall to less than three months of demand by year-end, with supply deficits estimated to occur every year until 2029.

Edward notes a point I’ve made in my own work “The difficulty for platinum is that both supply and demand are highly price inelastic in the short term, which can lead to sustained periods of market imbalances.”

This makes platinum vulnerable to violent price changes.

Edward notes that end-users are currently able to obtain physical platinum through leasing, but leasing rates have surged and leasing only “acts as a temporary source of supply.” I’d note that as there isn’t a significant source to lease platinum from (unlike gold, which can be leased from Central Banks), and there isn’t a large well of potential recycling supply (as there is with silver jewelry and silverware), and as the platinum market is extremely thin, the paper market is vulnerable to a breakdown where Bullion Banks struggle to meet futures physical delivery notices and platinum-backed ETFs struggle to obtain platinum to be allocated/vaulted against paper demand.

For supply and demand to equilibrate, we need to see the price of platinum rise to the point where it induces additional supply and/or ensures demand destruction.

I believe we are some way off this point.

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