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Platinum surges on fears of supply crunch as mine activity weakens

By Indrabati Lahiri

11:31, 30 December 2022

Platinum wedding ring on a plain background
Platinum prices have been steadily rising in the last week due to supply constraints – Photo: Getty Images

Platinum prices have been inching up in the last few days, following the World Platinum Investment Council (WPIC) releasing its first forecast for 2023, as well as reports of mine activity weakening globally and supply surpluses decreasing too.

At the time of writing, platinum prices were trading at about $1,051 per troy ounce, having increased about 2.9% this week. However, all eyes are still on Chinese Covid-19 developments, which have the power to significantly affect platinum prices.

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Platinum spot price chart

Why are platinum prices soaring recently?

According to the latest World Platinum Investment Council report, markets have most likely seen the end of platinum surpluses, after two years. The next year is likely to bring a deficit, mostly due to a reduction in supply surpluses.

For 2022, the forecasted surplus of platinum has already been reduced about 17%, which accounts to a total of about 804,000 ounces, according to the WPIC. In 2023 however, platinum markets are expected to tighten much more.

In the next year supply growth is expected to be about 2%, whereas demand growth will be about 19%, which is also expected to continue supporting rising prices. This is likely due to less mine activity over the last few months.

Increased interest in industrial, investment, jewellery and automotive demand over the last few months worldwide has also contributed to surging platinum demand. This has largely taken place in Europe and the US, which have more or less lifted Covid-19 restrictions entirely by now. Robust platinum bar and coin demand has also gone a long way in boosting prices further.

Although China was a major factor in this earlier, with relaxing Covid-19 restrictions and increasing factory output, cases are now rising once again, leading to speculations of renewed lockdowns.

Furthermore, China has also been a major buyer of platinum excess supply over the past months, effectively hoarding the precious metal somewhat and removing large quantities from the global market, despite having lower demand itself now.

This has led to tighter supplies in other markets, as manufacturers and investors continue to try to find alternative supply sources following the continuing sanctions on Russia. Russia was the second largest producer of platinum in 2021, after South Africa, accounting for about 19 metric tons, according to this report.

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South Africa has also been seeing increased labour union protests at platinum mines owned by Sibanye-Stillwater over pay and working conditions, which have also significantly disrupted production and increased prices further.

Platinum technical analysis

At the time of writing, platinum prices were trading at about $1,061 per troy ounce, having increased over 10% from December 22 alone. Furthermore, the precious metal has increased over 16% since the beginning of November, as well as about 30% since the beginning of September.

However, it is still trading about 10% down from its early-March 2022 heights, at the beginning of the Russia-Ukraine war, although prices did consistently trade above $1,000 since the end of September, which was last seen in June.

Coming to the next resistance level, it is likely to be at around the $1,100 mark, which was last seen on March 10, followed by the $1,150 per troy ounce mark and then the $1,180 mark. When it comes to the next support level, on the other hand, prices are likely to see it at the $1,000 mark, followed by the $960 level.

Platinum chart showing 50-day and 200-day moving average Platinum prices have been rising in the last few days – Credit: TradingView

What is the outlook for platinum?

According to the World Platinum Investment Council, platinum recycling was quite disappointing this year, which is likely to continue into the next year due to reduced automotive scrap. This is also expected to contribute to a tighter market.

2023 is also expected to see mine forecasts remain more or less neutral as compared to this year, due to current issues such as adverse weather conditions as well as protests and strikes. Declining ore quality has also been an issue lately, due to them requiring more processing.

We are also likely to see more platinum for palladium substitution in the next year, especially in the automotive industry, which is expected to grow about 11% year-on-year in terms of demand in the next year. Platinum demand arising from industry is also expected to increase about 10% in the next year, whereas jewellery demand is expected to be mostly flat in the coming year.

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