Last year’s five-month strike in South Africa was expected to deplete reserves so much that prices would soar. In reality prices were broadly stable during the strike at around $1450 per ounce with above-ground stocks held by producers and the trade (estimated at 2.8 million ounces at the end of 2014) comfortably making up for the shortfall.
Global Platinum output fell to 5.2 million ounces in 2014 with the strike in South Africa responsible for the bulk of the 655 kilo ounce reduction. The strike left the global platinum market in deficit to the tune of 700 kilo ounces in 2014, according to the World Platinum Investment Council, up 25 kilo ounces from 2013.
Despite the deficit platinum prices fell from $1450 per ounce in mid-2014 to around $1100 per ounce currently. As with most other commodities the strengthening in the US dollar since then providing a major head wind. So what are the prospects for platinum prices going forward?
A slowdown in China is equally important factor when considering demand from the automotive sector (41% of platinum demand in 2014) for use in catalytic converters (Chart 1). Car sales in China are suffering and further signs of adjustment to a new normal are starting to become clear. China’s official China Daily reported that “all officials below ministerial level will no longer be provided with a car and driver”. With 38% of platinum demand coming from jewelry in 2014, a slowdown in China (responsible for ~20 kilo ounces in 2014) could also see reduced demand.
Finally, demand for platinum as an investment dropped to just 1% of overall platinum demand in 2014, down from 11% in 2013 as demand from investors dried up with prices for all precious metals weakening. With the US dollar likely to remain strong investment demand could remain weak in 2015.
Chart 1: Platinum end use shares
Source: SFA (Oxford)
On the supply side HSBC (LONDON:HSBA) forecast that South African platinum output will recover strongly during 2015, with global output eventually rebounding to almost 6 million ounces by 2018, close to levels last seen in 2011 (Chart 2).
Chart 2: Global platinum production
Source: HSBC
With rising supply and a slowdown in demand the prospects for platinum prices don’t appear great in the short term. In the longer term HSBC expects demand to recover with platinum prices potentially exceeding $1,700/ounce by 2016/17. Given the prospects of further headwinds – the strength of the Dollar and a slowdown in China – and ample above ground stocks this forecast still feels way too optimistic.