The WPIC is predicting a record deficit of 1.2 million ounces in 2020. The projected deficit would mark a sharp uptick up from a deficit of 100,000 ounces in 2019.
The report states supply in 2020 fell by 18% due to virus-induced lockdowns. Meanwhile, demand fell only 5% as automakers managed to maintain output, resulting in a deficit of -1,202 Koz.
Next year, the council is expecting demand growth of 2%. That growth, it expects, will come on the back of stronger consumer and industrial demand as consumers return to less cautious ways and increase spending on jewelry and cars.
Automotive will see support not just from increased car sales but also greater per-vehicle PGM use as implementation of new, tighter Euro 6 emission standards in Europe come into effect.
This is expected to result in supply increasing by 17% and demand rising by 2%, resulting in a lower deficit of -224 Koz.
An important source of precious metals — and in particular, Platinum Group Metals (PGMs) — is in a spiral of diminishing returns and could run out of cash in 2020 with consequences for metal supply and market prices.
Ever since its corrupt and ineffectual leader Robert Mugabe was thrown out a shade over two years ago, the hope has been his replacement Emmerson Mnangagwa would enact reforms that would reverse the decline and root out corruption. While Mr. Mnangagwa has made some positive changes, unfortunately, his administration hasn’t shown the greatest competency.
Meanwhile, unable to pay for much-needed imports, the economy continues to spiral down. Importing more than it exports, Zimbabwe is facing dwindling foreign exchange reserves that threaten to choke off what remains of industrial activity.
More pressing even than the lack of fuel and spares is the impact it is having on the population, raising the prospect of further unrest — even outright insurrection — as Stratfor suggests in a recent Worldview report.
Fuel and food shortages spurred angry protests that ended in a violent security crackdown in January 2019 and while the government prioritizes what funds it has to pay off, the military’s rank and file, whose support is crucial to the administration staying in power, is suffering along with the rest of the population.
Government workers have begun demanding either pay raises or payment in U.S. dollars, according to the Stratfor report. The country’s junior doctors have been on strike since early September and were recently joined by senior doctors as well. Teachers, meanwhile, have also limited work to just two days a week and the risk of significant widespread unrest grows.
Zimbabwe’s mining sector has been in gradual decline for years, the government has been desperate to encourage more value-add refining at home but every step it takes – like enacting export bans similar to Indonesia – has backfired, creating greater trade imbalances as desperately needed exports have been blocked.
The country’s largest export is actually tobacco, making up nearly half the $1.93 billion of exports in 2017, the last year data was available, but metals make up a sizable portion of what is left.
Precious metals make up $145 million, ferroalloys make up $172 million and chromium ore makes up $122 million. Some ore goes for refinement to South Africa, but Zimbabwe’s largest export market by far is China, accounting for 44% of exports, according to the OEC.
If PGM exports were disrupted due to extended public unrest, the platinum supply market would still function. Zimbabwe’s production at some 11 tons per year is a tenth of South Africa’s 110 tons and only half Russia’s 25 tons, but it remains more than the U.S. and Canada combined, so any serious disruption would create support for higher prices next year.
The same goes for palladium, which has broadly tracked above platinum this year and rhodium, which has already performed strongly on the back of emissions regulation changes, as this graph courtesy of Johnson Matthey illustrates.
Source: Johnson Matthey
Zimbabwe has increasingly faced a precarious future. Once the stable and prosperous breadbasket of Africa, it has progressively slid into decline under corruption and misrule.
Despite the hopes of 2017 after Mugabe was dethroned, it looks as the next year could be its most testing challenge yet.
Platinum bar prices and a couple other precious price points led MetalMiner’s Global Precious Metals MMI to rise 2.4% for March 2017, landing at a value of 84.
Indeed, the U.S. platinum bar price, up by nearly 3% this month, has been on an upward trajectory for the past three months, starting the month out above the $1,000-per-ounce level for the first time since October 2016.
A Focus on Platinum
Worries over supply shortages of the namesake of platinum group metals (PGMs) are still behind the investment opportunities that the WPIC foresees — so much so that the Council is pushing new initiatives on two separate global fronts. Read more
Here’s the deal with palladium in a nutshell, from MoneyWeek:
“Both U.S. and Chinese car sales have been solid of late, with the latter rising at their fastest pace in three years (in 2016) and the former potentially set for another boost thanks to President Trump’s fiscal stimulus. China’s pollution problem is forcing it to tighten car emission standards, adds Chen Lin on Equities.com, which implies a steady rise in demand for palladium over the next few years.
“On the supply side, South Africa, the world’s top supplier, is not expected to increase mined output much. Analysts reckon that dwindling sales from Russia’s stockpiles means they are probably nearly depleted. TD Securities thinks the market deficit could double this year.” Read more
Republican control of the White House and both chambers of Congress in January will put the GOP in a tenable position to pass significant tax reforms it has been pushing for years, such as lower corporate rates and a simpler tax code, experts say.
It could be the most significant rewrite of the tax code since the Reagan administration.
The House Republican overhaul of the tax code is being written to expand the economy and avoid increasing budget deficits, U.S. Rep. Kevin Brady (R., Texas), who is leading the effort said on Tuesday.
“We designed our blueprint to break even within the budget, considering that economic growth,” said Brady, the chairman of the House Ways and Means Committee,at The Wall Street Journal’s CEO Council. At the same time, Brady said, if there are some deficits, he would accept them if the result was stronger growth. Avoiding long-run deficits could make it easier for Republicans to pass their plan under budget rules that avoid a Senate filibuster and forbid increasing future deficits.
Johnson-Matthey: Platinum Could See Surplus Next Year
The platinum market could return to surplus for the first time in six years in 2017 as lower auto catalyst loadings and weakness in Chinese jewellery purchases pull demand lower, refiner Johnson Matthey said in a report on Monday.
Investors are still giving platinum the cold shoulder and oil production likely hit its recent high in September. Oil likely hit an output record in September.
Platinum Still Not Trusted
Investors bruised by platinum’s dismal failure to capitalize on a five-month strike in 2014 are not convinced that stocks of the metal have shrunk enough to justify a return to the market, despite positive supply-side news this year.
Uncertainty over how abundant stocks of the metal are is continuing to curb investment interest in the metal, with holdings of platinum-backed exchange-traded funds (ETFs) falling to their lowest since mid-2013 this month.
Oil Likely Hit an Output Record in September
The Organization of the Petroleum Exporting Countries‘ oil output is likely to reach its highest in recent history in September, a Reuters survey found on Friday, as Iraq boosted northern exports and Libya reopened some of its main oil terminals.
You get the sense speaking with Trevor Raymond, Director of Research at the World Platinum Investment Council that the Platinum market is like a ticking time bomb – they are my words not his but during an interview prior to the release of the WPIC’s Platinum Quarterly Report for Q2, Trevor disclosed details about the supply side to the platinum market that bear further scrutiny.
The platinum market has been in deficit for five years now, a series of strikes and outages have consistently led to poor supply side numbers and 2015 was no different running a 520,000 ounce deficit. Investors looking for price increases have been thwarted by large, above-ground stocks that, while difficult to accurately quantify, are estimated by the WPIC as dwindling from some 4 million ounces to a current level of 2 million ounces over the period. Read more
However, the latter half of the summer has been kind to the gold, silver, platinum and palladium prices we track, with the past three months representing the highest MMI values of the entire calendar year.
All four precious categories tracked by the MetalMiner IndX softened over the month of August for our September 1 reading, contributing to the overall 4-point decline.
Main Index Drivers: Platinum and Palladium Prices
In a forthcoming MetalMiner analysis, my colleague Stuart Burns will share his findings from interviewing Trevor Raymond, director of research at the World Platinum Investment Council. The main takeaway? That the platinum market is like a “ticking time bomb.”
Essentially, the global platinum market has been in deficit for five years running, with mine strikes and shortfalls leading the way into a supply-side headache for the industry. Demand, meanwhile, appears robust, according to WPIC’s data and quarterly reports, led by developments on the heels of Volkswagen‘s diesel scandal, China and India’s jewelry desires, and a potentially interesting knock-on effect from rising oil prices. Read more
Of the three heaviest-weighted metal price points within this precious sub-index, gold bullion in both the U.S. in China, and silver ingot/bars in the U.S. all increased over the the last month, the primary drivers buoying the February MMI reading.
Gold Price Outlook
The longer-term outlook, though, may not be all that rosy for gold prices. “Despite talks of China and Russia buying gold, I still see main factors such as a strong [U.S.] dollar and a bear commodity market keeping a lid on gold prices,” Raul de Frutos, metals procurement specialist for MetalMiner, told me. “The price rally seen in January is way too small to consider that something is changing in the long-term picture.”
“I still have a neutral/bearish view on gold,” he concluded.
The Bigger Price Story: Palladium Downtrend
However, in a more interesting trend on the industrial metals side of the precious sector, two of the PGM price points we track on the MetalMiner IndX – for U.S. platinum and palladium bars – dropped 1.7% and 8.1% (!), respectively.
The U.S. palladium price has ticked up for a few days in a row since we took our MMI reading on Feb. 1, but it’s lost a whopping 26.3% in value since the beginning of November 2015.
So what’s going on in the palladium market?
The recent stock market selloff in China, which caused global tumult, is the real culprit hurting both palladium and platinum. A strong dollar is not helping matters, either.
Strong car sales globally – in Europe, China and the U.S., with the latter two hitting all-time highs – did not correspond with stronger performances for platinum and palladium prices.
The U.S. palladium bar price dropped 8.1% to $497/oz, from $541/oz in January. U.S. platinum bars also dropped, by 1.8%, down to $864/oz. China gold bullion rose slightly more than a dollar per gram, ending up at $35.98/gram.
And this month’s Global Precious Metals MMI was no exception – after hitting yet another all-time low of 68 last month, the sub-index bounced back up to 70 for our January reading.
As for the dead-cat bounce, the Aluminum MMI had what looked like one, my colleague Raul writes:
“Aluminum has declined more than 30% on the year-to-date. A 3% increase after such a price slump means nothing. Indeed, aluminum producers should be worried that prices are not able to make a decent rally from these low levels. That only means that investors are only interested in selling, not buying.”
“Although steel prices took a break from their year-long fall in December, there are still many factors weighing down prices. It seems too early to bet on a recovery in prices. For corrosion-resistant steel buyers, the effects of the new import duties are certainly something to watch.”
And even the Copper MMI had a tiny one too, (stay tuned for that story, coming next week).
So, alongside the baby-sized Fed interest rate hike came a bit of a bounce for our precious metals price index. Welcome to the party. Read more