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Demand for platinum from the auto industry will rise this year for the first time since 2016 but it won’t be enough to offset a decline in investment buying, leaving the global market in surplus again, the World Platinum Investment Council (WPIC) said on Wednesday .

WPIC said in its latest quarterly report that the surplus would rise to 119,000 ounces in 2020 from 65,000 ounces last year, and that was before factoring in any impact on demand from the coronavirus outbreak.

“The forecast doesn’t include any loss from the coronavirus yet, but we’re flagging it as a downside risk with definitely some impact on jewellery,” said the WPIC’s head of research, Trevor Raymond.

The WPIC is assuming the virus will be contained in a matter of months, he said.

About 8 million ounces of platinum are produced each year.

The group expects tighter government regulations to lift demand this year for platinum, which is used in vehicle exhausts to cut harmful emissions, mainly from diesel engines.

A decline in diesel vehicle sales since a Volkswagen emissions scandal in 2015 has sapped demand for the precious metal.

But platinum consumption by automakers is due to climb 4% this year to 3.01 million ounces, the first increase in four years, the report said.

“That will be driven by heavy-duty trucks in China and hybrid diesel vehicles in Europe, but the rise could be greater if the substitution of palladium with platinum takes hold,” Raymond said.

The price of palladium, which is mainly used on catalytic converters, has soared due to tight supplies and buying by speculators.

It has nearly doubled over the past 12 months, touching a record of $2,875.50 an ounce late last month, while platinum is much cheaper, currently trading at $867 an ounce.

“If only 5% of the palladium is substituted in gasoline cars, that’s 450,000 ounces a year more of platinum demand.” Raymond said.

Investment demand for platinum soared last year to 1.19 million ounces from 15,000 ounces in 2018, but is due fall to 633,000 this year, the WPIC said.

(By Eric Onstad; Editing by David Clarke)