Platinum touches 9-month high as global market looks at deficit
08:24, 9 January 2023
Platinum has been steadily rising in the past few days, recently hitting a 9-month high, as the world continues to deal with a supply crunch this new year. This has largely been due to ongoing after-effects of Russia, one of the world’s largest platinum supplies facing multiple international sanctions on the movement of its good abroad.
Furthermore, mine activity in the past few months has also weakened considerably, due to adverse weather, labour strikes and decreasing ore quality. This is expected to continue this year as well, leading to a further supply crunch for platinum.
Why has platinum just hit 9-month highs?
Platinum, which in Q4 2022 saw its best quarter since Q1 2008, has successfully maintained its upswing so far this year as well. This was largely helped by China buying up copious amounts of the precious metal, presumably in anticipation of its industrial and automotive manufacturing activity soon picking up speed once more.
According to the World Platinum Investment Council’s 2023 forecast for platinum, the market is expected to move from surplus to deficit of about 303,000 troy ounces in 2023. While demand is expected to grow about 19%, supply will likely lag far behind, with a mere 2% increase.
A number of mining companies have also had to reduce their production guidance and forecasts for the last two quarters of 2022, as well as the whole of 2023, at first glance. This is mostly due to ongoing issues with adverse weather and labour union problems, especially for major platinum miners such as Sibanye-Stillwater (SBYSF) in South Africa.
Furthermore, a number of companies are continuing to face energy challenges, as well as operational difficulties, due to the ongoing global energy crisis. As platinum mining is both energy intensive and requires significant water, mines located in areas of frequent droughts have also seen shortages recently, leading to boosted prices.
Moreover, there has been a shortage of scrap automobiles for platinum recycling, which has caused recycled platinum amounts to decrease sharply as well. This could potentially be due to inflation and the cost of obtaining new vehicles at the moment.
Furthermore, a weaker US dollar (DXY) has contributed heavily to rising commodity prices in the last few weeks. The US Federal Reserve is also slowing down its aggressive monetary tightening policy, due to announcing a 50 basis points increase in its last December meeting, a change from the last few 75-basis point hikes. This has also gone a long way in supporting precious metal prices.
However, platinum prices are very dependent on China, due to the immense automotive and jewellery demand. According to the World Health Organization, China is currently downplaying its number of COVID-19 cases and deaths and if this situation gets much worse, we may see the comeback of mass lockdowns, which would again hamper platinum demand.
What is your sentiment on Platinum?
Platinum technical analysis
At the time of writing, platinum was trading at about $1,093 per troy ounce. The precious metal has seen a gain of about 2.4% this week already and approximately 9.2% in the last month.
Although it is still trading at about 7.5% down from its early-March 2022 highs, at the beginning of the Russia-Ukraine conflict, the metal has still made significant progress in these last few months.
According to Piero Cingari, market specialist at Capital.com, the most recent price action witnessed some profit taking around 1,100 levels, which correlate to the 78.6% retracement of the 2022 low-to-high retracement as well as the March 10th, 2022 highs. If platinum breaks through this level, bulls will have a solid case to attack 1,179, which corresponds to the March 8th, 2022 highs. The 2023 lows and 61.8% Fibonacci level at 1,041 are presently providing support, followed by 1,000 (psychological and 50DMA).
Overall, the technical picture looks to be favourable for the continuation of bullish momentum, after the breach of the 61.8% Fibonacci level and the formation of a golden cross in early December.
Platinum prices have recently hit 9-month highs
Platinum prices have recently hit 9-months highs – Credit: TradingView
What is the outlook for platinum?
The outlook for platinum this year depends largely upon the COVID-19 situation in China, especially if the country is indeed underrepresenting its number of cases and deaths. This is being done by asking doctors to not mention COVID-19 as the primary cause of death, as well as the country stopping real-time COVID-19 data publishing.
If this situation continues, it is very likely that China’s health and economic infrastructure may start sagging under renewed cases. If so, the government may bring back their earlier zero-COVID-19 restrictions, such as mass lockdowns and testing, as well as decreased factory production. This may lead to platinum demand once again faltering, especially as automotive and jewellery production takes a hit.
Investors are also keeping a sharp eye on the Russia-Ukraine conflict developments, to watch out for further sanctions, as well as a worsening energy crisis, both of which could hit platinum prices hard. Mine production during the year is also crucial in determining whether platinum can meet its new overwhelming demand at the moment.
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