In the precious metals sector, platinum has struggled to capture the attention of investors. The precious metal managed to hold its critical long-term support at around $800 an ounce.
The World Platinum Investment Council drew attention to the growing dichotomy in the market for platinum as a precious metal.
According to the WPIC Platinum Quarterly report, the precious metal had a surplus of 349,000 ounces in the second quarter. The report says total surplus may increase to 974,000 ounces for the year, compared to a previous estimate of 627,000 ounces.
The council noted that the outflow of funds from exchange-traded funds backed by platinum affected prices. However, despite the growing surplus, the market is still tight.
Platinum remains undervalued by investors who only look at supply and demand factors.
Investment demand has the most significant impact on demand for platinum, as the market experienced significant outflows in the second quarter. The report also noted that the outflow of ETFs outpaces the drop in supply by 8%.
According to the WPIC, 89,000 ounces of platinum leaked from the ETF markets between April and June.
The council said that the demand for bullion and coins is mixed, with purchases in North America rising to a new high of 292,000 ounces after quarantine. However, the weak yen in Japan prompted some investors to sell their physical metal. According to analysts, this year, the total demand for bullion and coins will fall by 47,000 ounces, which is 14% less than in 2021.
In addition to investment demand, WPIC said that industry demand for platinum remains stable. And in the second quarter, automotive demand for platinum increased 8% to 50,000 ounces.
Even with the global recession, demand for platinum in the automotive sector is above 2018 and 2019 levels.
Platinum remains an important metal in automotive catalytic converters, which are used to remove harmful emissions from gasoline and diesel engines. Automotive demand makes up a significant portion of the platinum market.
WPIC expects total industrial demand to fall 15% to 2.132 million ounces. At the same time, industrial demand continues to outpace global economic growth.
Although there will be a significant surplus of platinum this year, demand from China remains a major surprise and a main driver of the market shortfall.
WPIC noted that information on platinum imports to China is limited. However, they estimate that China received 1.3 million ounces in the first half of this year. However, this estimate is not included in the official supply and demand forecast.
Significant levels of negative demand for ETFs and an outflow of stocks were enough to meet China's demand for imports and keep prices from rising.
WPIC was able to test the demand from China: the current surplus will turn into a deficit.
While platinum prices have fluctuated for most of 2022, the WPIC said that robust demand is expected to provide some support for the precious metal.