Platinum is on track for a supply deficit for the first time in 3 years. Here’s why.

The global platinum market is forecast to see a 556,000-ounce deficit this year, after supply surpluses in 2022 and 2021, according to a quarterly report from the World Platinum Investment Council (WPIC) released on March 8.

Total global demand from the automotive, jewelry, industrial and investment sectors is expected to rise 24% from 2022, while total supply from mining and recycling is forecast to rise by just 3%, the report said.

There are also other risks to supply, such as power shortages in South Africa hitting mine production, as well as the potential effect on Russian output of sanctions restricting importation of mining technologies, said Edward Sterck, director of research at WPIC.

The rise in demand, meanwhile, comes partly from an increase in the substitution of cheaper platinum for more expensive palladium in catalytic converters for gasoline-powered vehicles, Sterck said. Compared with last year, WPIC forecasts automotive demand for platinum to rise by 10%.

“There could be downside risk to demand for new vehicles this year, but … there’s probably upside potential for substitution,” Sterck said. Projections include an estimated 540,000 ounces in substitution demand for platinum this year, he said, and some market commentators are talking about as much as 1.5 million ounces next year.

On March 8, the platinum futures 
PL00,
+0.10%

PLJ23,
+0.10%
contract settled at $940.60 an ounce, while palladium 
PA00,
+0.42%

PAM23,
+0.42%
ended at $1,362.10 an ounce, its lowest since June 2019. In the past 12 months, platinum has lost 18%, but it still outperformed palladium, which dropped 54%. Palladium was badly hit by an anemic automotive sector, and demand hasn’t recovered since the pandemic, said Nikos Kavalis, managing director at Metals Focus. He said substitution of platinum for palladium and a rise in battery-powered vehicles contributed to palladium’s steeper decline.

Platinum also has been helped by growing demand from heavy-duty trucks and buses as emissions standards in Asian markets tighten, Kavalis said. He expects both platinum and palladium to see supply deficits this year due to limited growth in output and a recovery in automotive demand.

Investment demand for platinum, meanwhile, may improve this year, with demand for physical bars and coins expected to double and the outflow of platinum exchange-traded-fund holdings to slow, according to WPIC.

The physically backed GraniteShares Platinum Trust saw a net asset value gain of 10.2% in 2022. So far this year, as of March 6, it’s down 9.5%, according to Klearman. It’s possible, he said, that platinum prices will move higher due to a “resilient U.S. economy and job market, and expectations of increased Chinese economic activity.”

Demand for platinum as a catalyst in the generation of electricity from hydrogen fuel cells is also expected to grow. Sterck said the WPIC believes that total demand for platinum for the hydrogen economy will become “really meaningful over the medium to longer term.”

It’s a fairly small part of the overall supply and demand picture, but it is “growing rapidly,” Sterck said.