Platinum market to tighten this year, but catalyst demand to fall: WPIC

[LONDON] The platinum market will tighten more than previously forecast this year, an industry report said on Thursday, as shrinking supply of mined and recycled metal outweighs downward revisions for jewellery and autocatalyst demand.

In its latest Platinum Quarterly report, the World Platinum Investment Council forecast a 520,000-ounce deficit in the platinum market this year, up from a 455,000-ounce shortfall predicted three months previously.

"Demand has been quite robust, and supply has been weak," the WPIC's research director Trevor Raymond said.

"Refined supply out of South Africa is below 2013 levels." A strike in 2014 pushed South African output sharply lower, but it rebounded the following year.

The deficit is the fifth in a row for platinum, Mr Raymond said, though prices barely responded before rising investment helped the metal bounce by nearly a quarter this year.

The availability of existing inventories of platinum has cushioned the market from any supply shortage.

"Above-ground stocks have dropped from above 4 million to below 2 million," he said. "We think sentiment is likely to make the people who own those vaulted holdings less likely to sell into a deficit."

Despite the deficit, platinum's biggest demand segment, automotive consumption, is expected to shrink this year as falling diesel share outweighs higher vehicle sales. Platinum is used in autocatalysts, with the heaviest loadings in diesel cars.

Jewellery demand will be slightly higher, though growth is lower than was predicted in July, while investment, which accounts for 4 per cent of demand, is forecast to increase by 15 per cent to 350,000 ounces.

On the supply side, mine output from major producer South Africa is expected to fall 6 per cent, feeding into a 3 per cent decline in overall mining supply.

The WPIC also cut its estimates for supply of recycled metal by 3 per cent from its July forecast to 1.24 million ounces, as lower steel prices curbed the volume of scrap cars returning to market.

Recycling volumes will be up 4 per cent on 2015 levels, however.

"While the volume of recycled catalytic converters is expected to be lower year-on-year in 2016, this should be more than offset by an increase in the average platinum loading as a higher proportion of diesel catalysts are recycled reflecting the increase in diesel share in Europe in the 2000s," the WPIC said.

Overall supply will fall slightly more this year than previously expected, to 7.73 million ounces. That is down 2 per cent from 2015's total, and nearly 1 per cent lower than the estimate released in July.

REUTERS