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There is a threat of a major shortage of platinum this year due to a combination of increasing demand and falling supply. This is what the World Platinum Investment Council writes in a New report for the third quarter. Demand for platinum for both industrial and investment purposes picked up, while production in the mining sector lagged behind. As a result, the deficit for the third quarter amounted to 709,000 troy ounces, while the organization expects a deficit of 1.2 million troy ounces for the whole of 2020. Despite a recovery in mining production, a shortage is still expected next year.
The coronavirus pandemic had a major impact on the production of platinum mines in the second quarter. As a result, there was much less platinum coming from South Africa, the main producer of the precious metal, this year. Last year, the mining sector extracted 8.26 million troy ounces of platinum from the ground worldwide, this year it is estimated to be only 6.74 million troy ounces. This is despite the fact that the demand for platinum as an investment has risen by 406,000 troy ounces this year to 1.66 million troy ounces, an increase of 32%. The precious metal is benefiting from a flight to safe havens, with platinum looking like an interesting alternative to gold.
Major platinum shortage in 2020 (Source: WPIC)
In recent years, platinum has become relatively cheap relative to gold. At the beginning of this century, this precious metal was almost twice as expensive as gold, but since the financial crisis, investors have increasingly preferred the yellow metal. Since the corona crisis, gold has even more than twice as expensive as platinum. Many investors feared a slump in industrial demand for platinum, causing platinum prices to fall. The market picked up again in the third quarter, as more countries eased coronavirus restrictions and economic activity picked up. As a result, the platinum price also recovered.
This positive development is also reflected in the latest figures from the World Platinum Investment Council. We saw a recovery in all segments of the platinum market in the third quarter, with investment demand as the biggest outlier. This amounted to 981,000 troy ounces in the third quarter, more than 2.5 times as much as the 381,000 troy ounces in the second quarter. During this period, investors mainly bought platinum through ETFs and through the futures market. Platinum coins and bars were less popular.
Global demand for platinum by quarter (Source: WPIC)
Investors bought more platinum in the third quarter, mostly through ETFs (Source: WPIC)
Unlike gold, platinum is primarily an industrial metal. For example, 30% of total demand is accounted for by the automotive industry and another 26% by other industrial applications. About 23% goes to jewelry, while the remaining 21% is bought as an investment. As a result, the price of the precious metal is also strongly determined by economic trends. When the economy recovers, industrial demand may increase. In an adverse economic scenario, platinum can also benefit, as investors seek refuge in tangible assets. Platinum is an interesting alternative to gold due to its relatively low price.
The platinum market is expected to continue to show a deficit next year. Due to a further recovery in mine production and an expected decrease in investment demand, the deficit in 2021 will be lower than this year, namely at 220,000 troy ounces. Due to the relatively low price compared to gold, platinum may be an interesting alternative to gold and silver this year.
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Global demand for platinum is falling (Source: WPIC)
Platinum production fell even faster (Source: WPIC)
Investors represent 21% of the total platinum market this year (Source: WPIC)
Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.
