Platinum demand game changer needed to balance market
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By: Idéle Esterhuizen
4th May 2012
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JOHANNESBURG (miningweekkly.com) – A game-changing shift in demand would be required to alleviate the global platinum surplus, which stood at 735 000 oz last year, precious metals consultancy Thomson Reuters GFMS global head of precious metals Paul Walker said this week.
“My fear is that we are entering a period of structural surpluses in the platinum market where there is a degree of agility on the supply side and nothing in terms of demand that will bring about a balanced market.”
Visible platinum stocks rose to 4.5-million ounces in 2011 and could rise to more than 5-million ounces by the end of this year. Headline supply stood at 7.97-million ounces, while fabrication demand was 7.23-million ounces, resulting in a gross surplus of 735 000 oz in 2011. Although the surplus shrunk from 962 000 oz in 2010, GFMS said it remained substantial by historical standards.
Growth in demand was recorded in the autocatalyst, jewellery and retail investment sectors, but industrial demand decreased.
In terms of identifying a fundamental demand game changer, Walker said he did not think it would lie in the autocatalyst sector, certainly not in the short term.
Although demand in the sector grew by 4%, it remained 25% below 2007’s record high. Gains were limited by sluggish recovery in Europe’s automotive market, Japan’s natural disaster and ongoing substitution losses in gasoline and light diesel, in favour of sister-metal palladium.
In contrast, platinum in heavy-duty diesel applications posted robust gains, but volumes only accounted for 10% of platinum autocatalyst demand.
“We do not see the same flow-through in demand in this sector as we did four to five years ago, especially in the diesel sector. Companies in the automotive sector have indicated that the increased internal focus on thrifting and substitution is absolutely paramount since price hikes in platinum,” Walker explained.
On the palladium front, the gross deficit was anticipated to rise in 2012 and although declining demand in the jewellery sector was expected to persist, palladium’s penetration in the diesel segment would continue.
Headline supply in 2011 was 8.5-million ounces, while fabrication demand was 8.8-million ounces. A gross deficit of 0.3-million ounces was measured, and although this was an improvement from 0.6-million ounce deficit in 2010, Walker said it was still disappointing.
He pointed out that a substantial amount of above-ground stocks in Zurich and London were being held onto by buyers who were awaiting parity between palladium and platinum prices.
“We will not see a change in interest rates anytime soon, but I wonder how a healthy dose of higher interest rates will focus the minds of holders. The gross deficit will have to be significantly higher to start seeing a material rundown of stock, but currently there is no cure application on the demand side to motivate this,” Walker said.
He told Mining Weekly Online that the platinum and palladium markets could take an interesting turn from 2013 and 2014 onwards when the global economic backdrop was expected to improve.
“You will have demand drivers looking good, which should speak to platinum and palladium doing well; however, on the other side you will have investors exiting their stock positions and may not be buying new metal that is coming on.
“Take platinum for instance, even if surplus goes down, somebody has to buy it and if the investors are not there, it leaves the question of what the clearing price will be that eventually prevails.”
He suggested that this would lead to an interesting conundrum, as a lack of investors could lead to lower prices, despite growing demand.
“It would be fascinating to see how this plays out,” Walker said.
He said the market had priced in a premium on platinum because of supply risks in South Africa, with investors willing to take the metal off the market, as an insurance policy against any major production disruptions.
“Only if we were to see stocks well north of two, three years’ demand, do I think this argument will dissipate,” Walker noted.
The ninth edition of the ‘Platinum & Palladium Survey’ puts the platinum price forecast at between $1 475/oz and $1 775/oz this year. Platinum traded at $1 528/oz on Friday.
Edited by: Mariaan Webb
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