Platinum, Palladium Demand Dips In 2009: Johnson Matthey

A 4.4% decline in net global platinum demand and a 3.8% fall in net global palladium is expected in 2009, according to the latest market survey by metals specialists Johnson Matthey.

The report, entitled Platinum 2009 Interim Review, examines the market forecasts for 2009 for both platinum and palladium.

The following is a brief overview of the report.

Global platinum supplies are forecast to climb by 110,000 oz. to a total of 6.06 million oz. this year. In South Africa, a combination of safety issues, shaft closures and industrial unrest have led to a reduction in tonnes of gold ore milled. However, the sale of additional metal from refined stocks means that South African supplies will rise by 210,000 oz. in 2009 to 4.73 million oz. Platinum supplies from North America and Russia are set to fall to 255,000 oz. and 745,000 oz., respectively.

Gross autocatalyst platinum demand is forecast to decline by 33% to roughly 2.48 million oz. in 2009.

European autocatalyst demand for platinum is expected to fall by 45.7%, or 900,000 oz., to 1.07 million oz. The effect on demand of a sharp reduction in vehicle production has been exacerbated by a short-term decline in the market share of diesel passenger cars. Demand will fall in Japan, North America and the rest of the world, reflecting a fall in vehicle production volumes in each area. Chinese platinum autocatalyst demand will rise due to a strong performance by the automotive sector there.

The lower platinum price has reignited demand in the Chinese jewelry sector, encouraging the industry to replenish and further build its stocks, particularly in the first half of 2009. Improved profit margins have attracted new manufacturers and retailers into platinum jewelry, while a lower retail price has driven consumer purchases higher. As a result, demand in China is forecast to leap by 900,000 oz. to a record 1.75 million oz. in 2009.Net jewelry demand is expected to rise by almost 80% overall to an annual 2.45 million oz. platinum.

Net Japanese jewelry industry demand for platinum has risen as the fall in the metal’s price has depressed recycling volumes from secondhand jewelry. Demand from European and U. S. jewellers has declined due to the impact of the recession on consumer sales. Next year will bring some recovery in automotive and industrial demand for platinum as the world economy improves, but supplies are not likely to grow to the same extent and the market could move into a modest deficit. These positive fundamentals will support the platinum price. Much of the price rise over the past 12 months has been driven by a weak U. S. dollar, a strong gold price and by growing investor interest, and if these trends continue, platinum may trade as high as US$1,550 per oz. during the next six months. However, if the dollar strengthens, or the price of gold falls, then the platinum price could fall as low as US$1,280 during the same period.

Palladium

Net global palladium demand is forecast to decline by 3.8% to 6.52 million oz. this year. Autocatalyst demand will be depressed by lower light duty vehicle production in most regions. Electronics, dental and chemical sector purchases are also set to fall due to the effects of the economic slowdown. However, the low palladium price will boost physical investment demand and jewelry demand will rise slightly. Total supplies of palladium, including the sale of 960,000 oz. from Russian state stocks, are expected to fall by 1.8% to 7.18 million oz. The palladium market is therefore forecast to be in oversupply in 2009 by 655,000 oz.

Palladium supplies are forecast to shrink by 135,000 oz. to 7.18 million oz. in 2009. Sales from primary production in North America and Russia are set to decline. Palladium sales from South African producers are forecast to rise, despite a decrease in underlying production of palladium in concentrate. Sales of palladium from the remainder of the Russian state stocks, previously shipped to Switzerland, are expected to contribute a further 960,000 oz. to supplies.

Gross palladium demand for use in catalytic converters is expected to decrease by 12.7% to 3.9 million oz. in 2009. Demand in Japan, North America and the rest of the world will fall, in line with lower light duty vehicle production. Strong growth in domestic vehicle sales is likely to boost Chinese demand by some 135,000 oz. this year. European demand is forecast to fall only marginally as palladium benefits from a short-term rise in the market share of the gasoline engine and its steady introduction into diesel exhaust after-treatment.

Net jewelry sector demand for palladium is expected to rise to 920,000 oz. in 2009. Palladium continues to make steady progress as a jewelry metal in Europe and North America. The Chinese jewelry market appears to have stabilized and demand there will rise to 680,000 oz. palladium as recycling rates decline.

A surplus in the palladium market has weighed on the price over recent years. However, investors seem aware of the imbalance between demand and current mine production and are bullish on the palladium price over the longer term. Demand for palladium will benefit from a recovery in vehicle production volumes and if the funds continue to invest, the palladium price could rise to US$390 per oz. during the next six months. However, any weakness in gold and platinum prices or a strengthening of the dollar may undermine the price with the possibility that palladium could trade as low as US$290 during the same period. — The full report can be downloaded from w
ww.platinum.matthey.com.