LSE-listed multinational chemicals and precious metals company Johnson Matthey has published its platinum review, ‘Platinum 2013’.

The review said that the deficit was due to a steep decline in output from South Africa, the world’s biggest platinum producer. Primary supply of platinum fell by 13% to 5.64 million oz, the lowest for 12 years, while total demand for platinum in 2012 was down by 0.6% to 8.05 million oz. Recycling of platinum came to 2.03 million oz, marginally less than in 2011, the platinum review noted.

Further, platinum shipments by South African producers fell by 16% to 4.10 million oz in 2012, while at least 750 000 oz of production were lost to legal and illegal strikes, safety stoppages and closure of some marginal mining operations. Changes to supply from other regions were insignificant by comparison.

Gross demand for platinum in autocatalysts rose by 1.7% to 3.24 million oz. According to Johnson Matthey, weak European demand for platinum, due to depressed light vehicle output and a lower market share for diesel vehicles, was more than offset by higher demand in Asia and North America and by increasing demand for platinum autocatalysts for non-road diesel engines.

Gross world jewellery demand for platinum improved by 12% in 2012 to 2.78 million oz. It was boosted by expansion of the retail jewellery distribution network in China, allied to a degree of increase in manufacturers’ finished jewellery stocks. Investment demand for platinum was steady at 455 000 oz, with strong investor interest in North America and a rise in the minting of platinum coins.

Industrial demand for platinum in 2012 fell by 21% to 1.57 million oz. It was affected by a slowing of expansion in the glass industry, reduced production of hard disk drives in the electrical industry and the drawdown of inventory in both sectors. Chemical demand was slightly lower than in 2011, while demand for platinum in other applications was stable.

Recycling of platinum from end-of-life autocatalysts fell in Europe and North America. The price of platinum averaged $1,552 in 2012, $169 lower than in 2011, causing collectors of spent autocatalysts to hoard stock, awaiting better price opportunities. The decline in recovery from this source was partly offset by greater recycling of platinum jewellery scrap in China.

Johnson Matthey said that it expects primary supply of platinum in 2013 to be a little higher than last year, with broadly the same level of sales from South Africa as in 2012 and slightly higher shipments from other regions. Gross demand for autocatalysts is unlikely to grow and jewellery demand may well decline slightly. Demand from industry, notably the glass sector, is expected to rebound from the low 2012 level, while secondary recovery of platinum from autocatalyst scrap should grow. This will leave auto, industrial and jewellery demand more or less matched by supply. If investment demand repeats last year’s pattern of net growth, then the market for platinum may be in a slight deficit in 2013.

Meanwhile, the palladium market moved into a deficit of 1.07 million oz in 2012 from a surplus of 1.19 million oz in 2011. This was the result of lower primary and secondary supplies, record demand for palladium autocatalysts from the auto industry and a substantial swing in investment demand from heavily negative in 2011 to strongly positive in 2012.

The report suggested that palladium supply fell by 11% in 2012 to 6.55 million oz, the lowest since 2002. Russian newly-mined supply declined by 3% to 2.63 million oz, while sales from state stocks fell by two-thirds to 250 000 oz as palladium reserves neared depletion. South African palladium supply, affected by strikes and other stoppages, fell by 9% to 2.33 million oz.

Gross demand for palladium rose by 16% to 9.90 million oz in 2012. Purchases for autocatalyst manufacturing increased by 7.5% to a new high of 6.62 million oz, propelled by recovering car output in Japan after the natural disasters of 2011, further growth in China, and a boom in new registrations in North America as consumer confidence and economic activity continued to improve.

Industrial demand for palladium weakened by 4% to 2.37 million oz in 2012. Johnson Matthey explained that the metal was less intensively used for chip capacitors, its main electrical application, due to thrifting and to competition from base metal alternatives. Demand for palladium process catalysts improved with the expansion of capacity in Asia for making chemical intermediates for polyesters and plastics.

Lower production in China was the cause of a 12% decline to 445 000 oz in gross world demand for palladium in jewellery. Anaemic consumer demand for palladium jewellery in China has resulted in fewer manufacturers and retailers producing it or carrying stock. Demand for palladium was steady in most other regions and slightly higher in Europe, supported by its use in wedding rings for men.

Net physical investment in palladium in 2012 changed by over one million ounces. It switched from a negative 565 000 oz in 2011 to a positive 470 000 oz last year. Flows of palladium into exchange traded funds (ETFs) were strong in the first half of the year. The launch of a new investment trust in the USA in December 2012 added significantly to demand.

Supplies of palladium are likely to fall again in 2013 as Russian stock sales diminish further and mine output from Russia and South Africa struggles to grow. Although non-automotive industrial demand may only be stable at best, autocatalyst demand will continue to increase, probably to a greater extent in absolute terms than growth in recycling from autocatalyst, electrical and jewellery scrap. This is a recipe for an undersupplied market, an outlook which should maintain positive interest in palladium by subscribers to ETFs and other investment vehicles, with potential upward pressure on the palladium price as a result, the report forecasts.

Meanwhile, it has been revealed that due to Anglo American Platinum withdrawing its funding to Johnson Matthey’s platinum review, which has been in existence for 28 years, the report will no longer be published in future.

Johnson Matthey is however expected to publish an interim review later this year.

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