On 22 November the World Platinum Investment Council published its quarterly update on platinum supply and demand as well as its full-year projections. Despite demand declining across the board during the third quarter, the market was again undersupplied.
Jewellery demand continued to suffer from persistent weakness in China while autocatalyst demand started to feel the impact of last year’s diesel emission scandal. While diesel car sales are still up in Europe this year, their market share has fallen from more than 55% five years ago to less than 51% as of yesterday.
This downtrend in market share should continue as diesel engines are becoming increasingly uneconomical for smaller-sized cars. Consequently, the council has cut its estimate of undersupply for this year and introduced an even smaller one for next year.
We believe the market could shift into oversupply if investment demand is not as strong as expected. Considering platinum’s lacklustre performance, we see more downside than upside for investment demand.
Hence, we believe that the expectation of lasting undersupply is not warranted anymore. Supply and demand should be broadly balanced, implying that prices should trade in line with the marginal costs of production.
While rising wages and increasing power tariffs should lead to higher production costs in South Africa, this should be partly offset by a weaker rand.
Due to lasting weakness in Chinese jewellery demand and signs of slowing European catalyst demand, the expectation of lasting undersupply is not warranted anymore for platinum. Palladium continued to rally but prices have likely moved ahead of fundamentals.
Carsten Menke is Commodity Research analyst at Julius Baer