Decline and Potential Upswing in Platinum Prices

The global market is currently experiencing a downturn in platinum prices. In January, platinum was valued at $1,113 per troy ounce, but it has since fallen to around $845. This trend of decreasing prices is expected to continue through the end of 2023 and into 2024. However, conditions are now forming that could lead to an eventual increase in platinum prices.

Challenges Facing Leading Producers

This situation largely stems from difficulties faced by major platinum producers. Sibanye-Stillwater, a South African company, is re-evaluating the viability of its platinum mining and processing operations in the United States and South Africa, largely due to the declining platinum prices. This has coincided with rising costs for electricity, raw materials, and supplies needed for underground mining operations. Additionally, there's a decreasing concentration of platinum in the ores of currently exploited deposits.

Currently, Sibanye-Stillwater plans to reduce staff at its unprofitable mines in South Africa - Simunye, 4 Belt, Rowland, and Siphumelele - resulting in the layoff of 4,000 employees, nearly 9% of its workforce. This outcome was somewhat anticipated since their acquisition a decade ago due to concerns about profitability. The future prospects of the Rustenburg platinum belt, where these mines are located, remain uncertain.

Impala Platinum, another major South African producer, faces similar issues with declining revenues and rising costs. The company is reconsidering its operational and investment expenses, which could lead to reduced exploration activities or further layoffs. A revision of its $2.65 billion capital expenditure program is also possible. These actions by Sibanye-Stillwater and Impala Platinum are likely to reduce platinum production, impacting global supply.

Impending Market Deficit

The World Platinum Investment Council forecasts a significant platinum shortage by the end of 2023, with a deficit of over 1 million troy ounces, approximately 12% of annual global consumption. This shortage is attributed to reduced production in South Africa, not fully offset by increased outputs in the USA and Russia. Platinum reserves are expected to last only five months, with the majority locked in China, which shows reluctance to export.

Despite this, demand is projected to rise by 27% to 8,230 thousand troy ounces, driven largely by the automotive industry, which is expected to increase platinum orders by 13%. Contrary to the belief that electric vehicles will diminish platinum use, manufacturers are not phasing out internal combustion engines, which require platinum.

Additionally, the development of hydrogen-powered vehicles, which use platinum in fuel cells, is noteworthy. For instance, Hyundai Motor's hydrogen-cell truck, Xcient, is gaining traction in several countries, with plans to enter the U.S. market.

Future Prospects

The demand for platinum in the chemicals, petrochemicals, and surprisingly, the food industry (for uses like vegetable oils and biofuels), is expected to grow by 14%. Investment demand for platinum is also projected to increase.

Given these factors, platinum prices might rise from the current $845 per troy ounce to $1.1-1.2 thousand by spring 2024, with a potential further increase to $1.3 thousand in the fall.

In summary, the global platinum market is at a crossroads, facing a reduction in output and shifting dynamics among key players, which could significantly impact price trends.