As everybody knows, the platinum price has not been strong over the past year or so. What’s been less clear are the precise reasons for this weakness. After all, there was a severe squeeze on supply when strike action in South Africa severely curtailed production for several months in 2014.
And although much of that production is now back on stream, there’s still forecast to be a deficit between supply and demand of over 230,000 ounces this year.
Nevertheless, the platinum price has fallen from over US$1,400 per ounce a year ago to less than US$1,200 per ounce today. Only part of this can be explained by a corresponding strengthening in the US dollar.
There are two other factors. The first is that although there is likely to be a deficit this year, supply is nonetheless growing faster than demand as the South Africans ramp up again. The second is that the holders of above ground stocks have been selling down.
So, according to estimates made public by the World Platinum Investment Council, above ground stocks stood at over four million ounces back in 2012. At the end of 2014 they were down at 2.8 million ounces, and they are forecast to fall by another 200,000 ounces or so this year.
That’s in comparison to total mining supply in 2014 of 5.2 million ounces, and a forecast for 2015 of 5.8 million ounces. In short, an amount equating to nearly a fifth of global supply has been dumped on the market over the past couple of years. And the resultant effects on price are pretty clear to see.
Will this change?
Well, the World Platinum Investment Council is not given to forecasting pricing, but it is worth noting that the forecast for above ground sales is for the pace to slow, even as the deficit narrows. So it’ll be a fairly fine balancing act over the next few months as the market works out how those various dynamics fit together.
Total mine supply is expected to increase by 10 per cent this year, total demand is expected to increase by three per cent, while above ground stocks are expected to decrease by eight per cent.
If the rate of depletion of the above ground stocks carries on, then the market will eventually become all about mine supply and demand. But it’ll be a few years yet before that happens. And until then the decisions of the holders of the above ground stocks will be the great unknown when it comes to forecasting the price.