Metals commentary: Platinum market balanced in 2010, says Johnson Matthey

The following was released by Johnson Matthey and is based on its Platinum 2011 report which can found at www.platinum.matthey.com.

In line with global economic recovery in 2010, gross demand for platinum increased by 16% to 7.88 million oz., according to Platinum 2011. Global supplies of platinum increased by 0.6% to 6.06 million oz., while recycling of platinum rose by almost a third to 1.84 million oz. Resurgent growth in the automotive and industrial sectors was responsible for the platinum market being close to balance, with a surplus of only 20,000 oz., compared with a surplus of 635,000 oz. in 2009.

Global supplies of platinum increased by just 35,000 oz. to 6.06 million oz. in 2010 after a mixed year for producers. Although refined production in South Africa rose in 2010, not all of this metal was shipped by the year-end, leading to sales of platinum from South Africa remaining flat at 4.64 million oz. Russian platinum shipments climbed by 5% to 825,000 oz. Supplies from Zimbabwe grew by almost a quarter to 280,000 oz. following a ramp-up of expansion projects in the country.

Demand for platinum in autocatalysts rose by 43% to 3.13 million oz. as the global automotive sector bounced back from a poor 2009. Purchasing of platinum for use in automotive emissions control increased in all regions as vehicle production rose. The largest increase in platinum demand was in Europe, where it is mainly used in diesel autocatalyst formulations. 

Gross industrial demand for platinum jumped by 48% to 1.69 million oz. in 2010. Economic recovery in developed markets, and strong growth in emerging ones, drove higher levels of production of electrical, glass and chemical products which use platinum either in the finished item or in the manufacturing process. 

Purchasing of platinum by the jewelry sector fell by 14% to 2.42 million oz. in 2010 following an extremely strong 2009. Demand from the Chinese jewelry sector remained robust, at 1.65 million oz., but this was significantly below the exceptional level of 2009. A combination of higher metal prices and full stock levels contributed to the decline. However, demand in China was substantially higher than in 2008, the last time platinum’s price was at similarly high levels to 2010.

Stimulated by low interest rates and a positive outlook for supply and demand fundamentals, net physical investment demand for platinum remained robust in 2010 at 650,000 oz., a similar volume to that seen in the previous year. Investors bought heavily into the newly-launched physically-backed platinum exchange traded fund (ETF) in North America. 

Growth in automotive and industrial demand is expected to continue and, with limited expansion in supplies, Johnson Matthey forecasts that the price of platinum will average US$1,870 per oz. in the next six months, compared with an average of US$1,762 during the six months to the end of April 2011. With positive supply and demand fundamentals and continuing global economic growth, platinum could trade as high as US$2,000 in the period. If interest rates in key markets remain low, speculative investment interest should also support platinum’s price. Although external shocks such as oil price rises or negative sentiment surrounding sovereign debt could once again prove to be a drag on the price, strong physical buying in China is likely to give support during price dips, meaning platinum is unlikely to fall below US$1,750 per oz.