Platinum deficit could cause palladium shortage

The world platinum market is expected to swing to a big deficit this year, close to 1 million troy ounces. Here is why this is happening and what implications this may have for the sister metal palladium.

World Platinum Investment Council forecasts a platinum deficit of 983,000 troy ounces this year, according to the latest report of the global research group. In its previous estimate the council saw the 2023 platinum deficit at 303 thousand ounces.

The World Platinum Investment Council's forecast is based on several key points. Firstly, there will be a significant increase in investor demand for platinum as a hedging instrument amid fears of a new global economic crisis. Holdings in bars and coins could rise by 79% to more than 400,000 troy ounces.

Secondly, platinum consumption globally by industries is expected to grow by 17% to 2.6 million troy ounces. The main contributors to this growth will be the chemical and electronic industries.

Thirdly, platinum demand from the automotive industry will expand by 12% to 3.3 million ounces. It will be mostly due to heavy vehicle production and substitution of palladium in cars, according to the World Platinum Investment Council.

Fourthly, global platinum supplies will shed 1% to 5.5 million troy ounces due to blackouts in South Africa, a key platinum supplier.

All of the above is plausible and what the report is missing is the chemical sector with its platinum demand for the production of paraxylene, a critical component needed to produce plastics and polyester fibers, and the electronics industry – from companies producing liquid crystal glass for laptop displays and TV screens.

What’s questionable is that platinum will be replaced by palladium in the car industry: there are limits to its use in cars. In addition, palladium reserves in South African mines are significantly smaller than platinum ones. Consequently, reduced shipments of platinum will automatically lead to a fall in palladium sales and could create a palladium deficit of up to 20-50 thousand troy ounces by the end of 2023.

As a result, platinum and palladium prices are set to rise significantly in the coming months: platinum from $1,079 per troy ounce to $1.2-1.3 thousand and palladium from $1,495 to $1.7-1.8 thousand, benefiting the financial health of their main producers.