Johnson Matthey publishes Platinum 2006 Interim Review

The platinum market has moved closer to balance with a predicted deficit of only 20,000 oz in 2006. According to Johnson Matthey, global demand for platinum in 2006 is expected to grow by 5% to a record 7.02 Moz, driven by increasing use in catalysts by the auto industry. Supplies of the metal have increased by almost the same rate, to a new high of 7 Moz, due to expansion in South Africa.

Emissions legislation and growing production of diesel vehicles continue to drive platinum consumption higher. Autocatalyst platinum demand is expected to grow from 3.82 Moz to 4.38 Moz in 2006. Diesel cars will account for over 50% of light duty vehicle sales in Europe this year and many are now fitted with platinum-catalysed particulate filters in addition to oxidation catalysts. Increasing use of catalysts on light and heavy diesel trucks in North America is further adding to demand.

Rising and volatile platinum prices put another dent in global jewellery demand. Platinum purchases by the jewellery industry will fall by over 10% to 1.74 Moz. With platinum prices high and volatile, manufacturers and retailers in all major regions have cut back inventories, while in China and Japan, recycling of old stock has also continued to affect the amount of new metal purchased.

The platinum market is expected to be close to balance again in 2007. Expansions in primary output will continue next year. Another rise in demand for autocatalysts will absorb much of this increase and there are good prospects for further growth in the relatively price-inelastic industrial sector. The performance of the jewellery sector will however continue to be heavily dependent on the price of platinum.

Platinum is forecast to trade between $980 and $1,200/oz over the next six months. After peaking at $1,335/oz in May 2006, driven by intensified fund investment in commodities, the price of platinum weakened and fell below $1,100/oz during October. Johnson Matthey expects that if investors retain an interest in precious metals, platinum could test $1,200/oz. Lower prices would be likely to prompt increased buying from the jewellery and other sectors, preventing the price from falling below $980/oz.

Palladium supplies are forecast to exceed demand by 1.63 Moz in 2006. An increase in the use of the metal in autocatalysts will be outweighed by lower purchases by the jewellery industry in 2006, to leave demand at 6.85 Moz, a fall of 6%. With growing output of palladium from South Africa and significant sales expected from Russian state stocks, supplies will grow by 1% to 8.48 Moz. This market surplus is being absorbed by investment funds.

Autocatalyst demand for palladium will rise from 3.87 Moz to 4.14 Moz in 2006. With the palladium price significantly below that of platinum, there has been ongoing substitution of platinum by palladium in three-way catalysts fitted to gasoline vehicles. 2006 has also seen the first significant use of palladium in diesel exhaust after treatment. Both trends are likely to continue next year.

Global palladium jewellery demand will fall by 310,000 oz to 1.12 Moz. After rapid growth in 2004 and 2005 to fill the distribution pipeline, purchases of palladium by Chinese jewellers this year have been negatively affected by the recycling of old jewellery stock. However, retail sales to consumers appear to be healthy, which suggests that palladium demand may recover as the rate of recycling diminishes.

Palladium is set to trade in the range of $260 – $380/oz. Although a large surplus in the palladium market is expected in 2006, investment funds have been willing to absorb this, indicating a belief that palladium may be undervalued. Improving prospects for palladium demand may encourage funds to extend their long positions, potentially raising the price to a high of $380/oz in the next six months. Even without increased fund support, Johnson Matthey does not expect palladium to trade below $260/oz over this period.