LONDON--()--Gross platinum demand rose by 2% in 2011 to 251.8 tonnes with growth in every sector apart from investment, according to Johnson Matthey in “Platinum 2012”, released today. Supplies increased to a four-year high of 201.6 tonnes, supplemented by releases of in-process and refined inventories from South Africa in the second half, while recycling increased to 63.6 tonnes. As a result, the platinum market swung into oversupply of 13.4 tonnes.
Global supplies of platinum grew by 7% last year to 201.6 tonnes. Underlying mine production in South Africa fell by around 3.7 tonnes. However, releases of metal from inventories meant that total shipments from South Africa rose by 5% to 151.0 tonnes. A ramping up of mined output in North America following shutdowns in 2010, and new and expanding operations in Zimbabwe coming on-stream, together contributed significant additional output.
Gross platinum demand in vehicle emissions control grew by 1% to 96.6 tonnes. Purchasing of platinum in the heavy duty diesel sector increased by 27% to 16.0 tonnes last year. Much of this growth was due to pent-up demand for large trucks in North America as fleet operators returned to the market following the recession of 2009-2010. However, there was lower use of platinum in light duty emissions control due to substitution by palladium, as well as reduced buying by Japanese manufacturers in the wake of the Great East Japan Earthquake.
Purchasing of platinum for industrial applications rose by 17% to 63.6 tonnes. Recovery from recession in developed markets and rapid growth in emerging ones drove a period of capacity building in a number of industrial sectors. In particular, demand for LCD panels in consumer electronics led to the installation of several new melting tanks in Asia, used in the manufacture of LCD glass.
Jewellery manufacturers bought 77.1 tonnes of platinum last year. In the second half, when platinum prices dropped and gold began to trade at a premium to platinum, there was a surge in buying by Chinese manufacturers, raising gross jewellery demand in China by 2% to 52.3 tonnes for the year as a whole. In India, an increase in retail outlets offering platinum and rising consumer purchases drove platinum jewellery demand up by a third to 2.5 tonnes.
Physical investment demand for platinum remained positive but was 30% lower than in 2010, at 14.3 tonnes. There was net investment into exchange traded funds, with inflows tending to coincide with periods of rising prices. Substantial purchasing of large platinum bars by Japanese investors once again occurred during price dips.
Recycling of platinum increased by 12% to 63.6 tonnes. Recovery of platinum from spent autocatalysts rose by 4.4 tonnes to 38.1 tonnes last year as more highly-loaded catalysts from end-of-life vehicles were collected and refined. Stimulated by higher average metal prices, recycling of platinum in the jewellery sector rose by 10% to 25.2 tonnes.
The balance of the platinum market this year is expected to be similar overall to that in 2011. A comparatively low level of inventories in South Africa after the drawdowns of last year means that the industry has less flexibility to supplement platinum supplies with metal from stocks. Recent disruptions to underlying output from strikes and stoppages increase the likelihood of lower supplies in 2012. Flat autocatalyst demand and more moderate levels of purchasing in cyclical industrial applications will lead to a slight fall in gross demand. The platinum market is forecast to remain in surplus in 2012, which is likely to keep the price in a range of $1,450 to $1,750 per ounce in the next six months, averaging $1,600.
PALLADIUM MARKET IN OVERSUPPLY LAST YEAR
MARKET EXPECTED TO RETURN TO DEFICIT IN 2012
The palladium market was in a 39.0 tonne surplus in 2011. Although autocatalyst and industrial demand for palladium rose, the sale of metal from Russian government-controlled inventories, together with a large amount of metal released from ETFs, meant that the palladium market moved into oversupply last year.
Supplies of palladium remained almost flat at 228.9 tonnes in 2011. Once again, substantial quantities of palladium were sold from Russian state stocks. However, the volume of these shipments, at 24.1 tonnes, was the lowest for several years. This year-on-year decline largely offset growth in primary output from North America and Zimbabwe. In South Africa, palladium supplies fell as producers added to stocks, while primary output from Russia was largely flat.
Gross demand for palladium fell by 13% last year to 262.8 tonnes. Purchasing strengthened in the core autocatalyst and industrial markets, which accounted for 94% of gross demand. The year-on-year decline in total demand in 2011 was primarily due to the investment sector switching from extremely high net demand in 2010 (of over 30 tonnes) to effectively supplying over 17 tonnes back to the market.
Gross demand for palladium in autocatalysts reached record levels in 2011 of 187.6 tonnes. Higher vehicle output in all regions apart from Japan as well as the greater use of palladium in light duty diesel autocatalyst formulations helped spur demand for palladium in emissions control.
Demand for palladium in industrial applications increased marginally in 2011 to 77.1 tonnes. Recovering demand in the chemical industry in China led to new orders for palladium process catalyst charges. In the electrical sector, purchasing of palladium softened as competition from cheaper alternatives eroded palladium’s market share.
Purchasing of palladium by the global jewellery industry declined once again in 2011. Palladium continued to suffer from a lack of positioning in the key Chinese market. In Europe and North America, demand responded to price increases; palladium traded on average 39% higher than in 2010, leading manufacturers to offer lower weight and lower fineness alloys to meet retail price points.
Investment demand for palladium turned negative in 2011, returning 17.6 tonnes to the market. Deep liquidations in exchange traded funds, especially in the final quarter of the year when prices were falling, left physical investment demand in starkly negative territory by the year-end. This was in contrast to the high level of net investment in 2010.
Recycling of palladium in the autocatalyst, electrical and jewellery sectors increased by 15.4 tonnes to 72.9 tonnes. Recovery from end-of-life vehicles soared by 26% to 51.5 tonnes as highly-loaded gasoline car catalysts were returned for recycling, particularly in North America. Palladium jewellery recycling more than doubled as a result of returns from unsold retailer stock and old consumer jewellery.
The palladium market is forecast to swing back into deficit this year. We expect that there will be one further year of sales from Russian state stocks in 2012, albeit at a much reduced level than previously, which will represent the bulk of the remaining government-controlled inventories. Gross demand for palladium in autocatalysts is expected to rise in line with higher gasoline vehicle output and greater use of the metal in light duty diesel emissions control systems, resulting in a modest increase in overall gross demand and pushing the market into a deficit. The positive fundamentals are likely to support the price between $620 and $800 per ounce and on average at $715 in the next six months.
Platinum 2012 is Johnson Matthey’s latest free survey of the platinum group metals market. Johnson Matthey is the world’s leading authority on production, supply and use of the platinum group metals.