Recovery predicted for platinum and palladium prices
By Chris Flood , Financial Times, 18 May 2009 Platinum and palladium prices could see a further significant recovery after last year's slump, according to Johnson Matthey, the precious metals refiner.
But significant uncertainty surrounds the outlook for both metals due to the collapse in US and European car sales that has substantially reduced automotive industry demand.
In its widely followed annual report on the platinum and palladium markets released on Monday to coincide a week of industry related events in London, Johnson Matthey said it expected platinum to trade between a low of $950 and a high of $1,350 a troy ounce over the next six months while palladium was forecast to trade between $180 and $280.
"Our sense is that the worst has already been priced in for demand," said Stephen Briggs of RBS: "The Johnson Matthey price forecasts look relatively conservative, towards the bottom of what is plausible."
Cautioning that weak conditions in the automotive industry were expected to continue, Johnson Matthey said last year's collapse in US vehicle sales reduced north American carmakers' demand for platinum by more than a third while palladium consumption dropped by more than a fifth in 2008.
Both metals are used as vital components in diesel (platinum) and petrol (palladium) exhaust catalysts that reduce noxious emissions.
Worldwide automotive demand for platinum broke a nine-year run of rising consumption in 2008, dropping 8.2 per cent to 3.80m ounces, and contributing to a drop of 5 per cent in total platinum demand to 6.34m ounces last year.
Worldwide automotive demand for palladium fell 3.6 per cent to 4.38m ounces last year but total palladium consumption saw a marginal increase of 0.2 per cent to 6.85m ounces in 2008.
James Steel, precious metals analyst at HSBC, expects automotive and industrial demand for both platinum and palladium to drop further in 2009.
"The outlook for global auto production for the rest of 2009 remains problematic," said Mr Steel: "Price incentives and cash-back packages in the US have done little to support demand to date."
However, growth in China's jewellery market played a vital part in bolstering demand for both metals last year.
China's demand for palladium jewellery jumped 30 per cent last year to 650,000 ounces, pushing worldwide jewellery demand up 19.6 per cent to 855,0000 ounces.
Chinese demand for platinum jewellery increased 9 per cent to 850,000 ounces but this was offset by falls in Europe, north America and particularly Japan where extremely large volumes of old jewellery were recycled last year. Global demand for platinum jewellery dropped 6.2 per cent to 1.37m ounces, falling for a sixth consecutive year in 2008.
Investor demand played a crucial role for price developments in 2008.
Investor demand for platinum through coins, bars and exchange traded funds reached 425,000 ounces last year, up 150 per cent compared with 2007.
Investor holdings in platinum ETFs dropped by almost half to 105,000 ounces last year as prices fell sharply between March and October. However, this was offset by exceptionally strong demand from Japanese investors who bought 275,00 ounces of platinum in large bars in 2008, compared with net selling of 60,000 ounces in 2007.
Total investor demand for palladium surged 53.8 per cent to 400,00 ounces last year, with the vast majority of the increase driven by buying by the two European palladium ETFs. These two funds saw relatively little selling last year when prices fell suggesting investors have adopted a long-term attitude to their holdings.
Demand for palladium bars and coins reached 30,000 ounces compared with net selling of 20,000 ounces in 2007.
Supplies of both platinum and palladium both recorded substantial falls last year, due to problems in South Africa and Russia.
Total platinum supplies fell 9.5 per cent to 5.97m ounces as South African producers encountered problems with electricity supplies, bad weather, safety closures and smelter shutdowns. The production problems in South Africa meant that the platinum market was still in a supply deficit of 375,00 ounces last year in spite of the weakness in demand from the automotive industry.
Total palladium supplies dropped 14.8 per cent to 7.31m ounces last year, following declines in production in South Africa, north America and Russia.
Sales of palladium from Russia's state stocks dropped by over half a million ounces to 960,000 ounces in 2008. However, these sales from Russian stocks were sufficient to ensure that the palladium market remained in supply surplus of 460,00 ounces last year.
Platinum traded at $1,105 a troy ounce on Monday, up almost 20 per cent this year but still down 51.7 per cent from the record $2,290 a troy ounce reached last March when electricity supply problems in South Africa brought widespread disruption to production.
Palladium was at $224 a troy ounce up 21.4 per cent this year but down 62 per cent since reaching a near-seven year high of $590 in March last year.
IGC Price at posting:
23.0¢ Sentiment: Buy Disclosure: Held
