Platinum council widens forecast deficit for 2016

JOHANNESBURG (miningweekly.com) – Despite a rebound in supply in the second quarter of the year, the World Platinum Investment Council (WPIC) has widened its forecast platinum deficit by 64 000 oz for 2016 on the back of “little evidence” to support rising output over the medium term.

The eighth Platinum Quarterly, prepared by SFA Oxford for WPIC, revised its forecast from a deficit of 455 000 oz predicted in the first quarter to a deficit of 520 000 oz, as supply contracts and demand remains static.

The report forecasts that total supply will decrease by 2% to 7.73-million ounces this year, as lower refined production from South Africa and Russia outweighs gains in other regions and from recycling, while demand remains flat year-on-year.

“Platinum production from South Africa, the largest producer, has failed to reach the levels observed in 2013 and 2015. Real cost increases due to labour costs – which account for over 50% of overall mining costs – continue and, together with low metal prices, they have driven the fall in capital investment across this industry. Sustaining current output is harder as a result,” WPIC said in the report on Thursday.

South Africa’s output is forecast to contract 6% year-on-year to 4.19-million ounces in 2016, owing to shaft closures.

Further, capital investment in platinum mining in South Africa continues to reduce each year, with a “dramatic fall” from almost $4-billion a year seven years ago to less than $1-billion currently.

“The predicted strong growth in platinum supply from recycled autocatalysts, argued by some as potentially weakening platinum’s solid fundamentals, has not materialised. While growth in recycling supply is still likely, it remains muted due to the ongoing low scrap steel price and reduced rates of car scrapping,” the report pointed out.

“Overall, we firmly believe that platinum supply will remain constrained for the foreseeable future,” the council assured.

Meanwhile, global demand is expected to remain flat at 8.25-million ounces in 2016, with automotive demand slightly lower year-on-year at 3.39-million ounces and jewellery demand mostly unchanged at 2.88-million ounces.

“Industrial demand is expected to dip by 2% year-on-year to 1.62-million ounces, while investment demand is projected to expand by 45 000 oz to 350 000 oz, as although bar and coin demand is expected to fall back from the exceptional level seen in 2015, the reduction in exchange-traded fund holdings is also expected to be lower than last year,” WPIC noted.

SECOND-QUARTER PERFORMANCE
The second quarter of 2016 saw a 22% surge in quarter-on-quarter total platinum supply to 2.17-million ounces, as refined production in South Africa returned to more normal levels, sales from producer inventory continued and supply from recycled autocatalysts increased.

Total global consumption fell 2% quarter-on-quarter and 4% year-on-year to 1.99-million ounces, as gains in jewellery and industrial demand were outweighed by lower investment demand and a slight reduction in autocatalyst use.

The small decline in demand and strong recovery in supply compared with the first quarter resulted in a market surplus of 190 000 oz in the second quarter of the year.

“We are confident that the fundamentals behind platinum remain strong, will be so for the foreseeable future and will continue to present a compelling case for investors,” WPIC concluded.