World Platinum Investment Association: is there a shortage of 10 tons or a surplus of 30 tons in the platinum market in 2020?

SMM: on Sept. 8, the World Platinum Investment Association released its Platinum Quarterly for the second quarter of 2020 and predicted that global platinum supply would be reduced by 36 tons to 221 tons and total demand by 30 tons to 231 tons as a result of the epidemic. Supply and demand in the platinum market is expected to enter a shortage in 2020, with a shortfall of 10.5 tons.

On September 16th, Heraeus (Heraeus), a famous international precious metals company, also released the latest precious metals market report: excluding investment demand, it is predicted that the global platinum market will have a surplus of 1 million ounces (31 tons) this year.

The two reports provide two very different forecasts, which undoubtedly cause great confusion for domestic precious metals investors-will there be a shortage or oversupply in the platinum market in 2020? In fact, these two predictions are due to different views held by different research institutions on whether investment demand should be included in the analysis of supply and demand.

Commodities are physical products, and the surpluses or shortages shown on the balance sheet of supply and demand are actually changes in inventory, which are owned by producers, consumers or financial speculators (investors). Although investment demand, the inventory owned by speculators, has historically been incorporated into supply and demand forecasts, this view has changed over the past few years. Now, different financial analysts and consultants have different opinions on whether to include investment demand in the analysis of supply and demand. The following are the reasons why market research institutions are for or against this view.

Yes-the investment demand represents the physical demand of the investment market. At the same time, it is also a potential source of metal supply when investors plan to sell physical objects. Based on this, investment requirements are similar to other platinum requirements. For example, the platinum demand of the automobile industry will generally return to the market by recycling supply after the expiration of the car's life span, increasing the market supply. In the jewelry market, especially when the price of platinum is high, customers can trade in old jewelry, and old platinum jewelry can also be recycled to increase market supply.

The growth of investment demand will directly affect the spot market. If demand for safe-haven assets grows, then demand for platinum investment will increase, resulting in physical platinum circulating on the spot market being bought and placed in vaults (to support exchange-listed platinum ETF or platinum accumulation schemes) or molded into platinum bars or coins held by retail investors. This will inevitably tighten the supply of platinum in the spot market, making it difficult for industrial users to buy physical platinum.

Objection-considering that neither producers nor consumers will increase their holdings of metals when prices fall, investors can be seen as buyers of last resort. Based on this view, the continued growth in investor demand does not necessarily herald a healthy market fundamentals in the future, as investment demand will become a potential source of metal supply when the spot market turns scarce.

Whether this reason is valid or not is worthy of our discussion. As precious metals, including platinum, have mining costs, when prices fall to a certain level, producers will have a greater incentive to increase inventories. We should remember that when platinum prices plummeted in the 2008 financial crisis, Chinese platinum jewellery makers bought heavily to replenish inventories. In the first half of this year, platinum prices plummeted as a result of the epidemic, and China's platinum imports increased sharply. For precious metals, many investors tend to make long-term investments for as long as 2 to 3 years, and the increase of investors' holdings will have a great impact on the supply and price of metals during this period.

a middle course? The third way is to include retail investment demand but exclude institutional investment demand. The logic of this view is that the demand of institutional investors is usually linked to the standard platinum bars (ingots) for delivery in the London platinum and palladium market. If the financial instrument is sold, the platinum bars that support or link the investment vehicle may be bought by automakers and then converted into sponge platinum for industrial use. Because of the high premium on platinum coins, when individual investors sell platinum coins, in most cases, the buyer will be another coin investor and is unlikely to be industrial users. In fact, in this case, the platinum coin is a legal tender and it is illegal to remelt it.

For this reason, research institutions that agree with this view exclude institutional investment demand from supply and demand analysis because they believe that future selling will pose a risk to the spot market: increased supply.

Based on the above analysis, the World Platinum Investment Association (WPIC) agrees with the first view that investment demand should be included in the platinum supply and demand analysis. Of course, when there is a net outflow of platinum ETF or platinum accumulation products, investment demand will show negative growth, thus increasing the supply of platinum in the market.

The World Platinum Investment Association predicts a platinum investment demand of 1.06 million ounces (33 tons) in 2020, including 600000 ounces (19 tons) for platinum bars and coins, 160000 ounces (5 tons) for platinum ETF, and an increase of 300000 ounces (9 tons) in stock exchanges.