The platinum market is expected to recover from its fifth consecutive year of supply shortage, in 2016, by posting surplus output in 2017, whereas the palladium market will increase its deficit in 2017, cancelling out progress made during 2016 in reducing this shortfall.

This is according to platinum authority Johnson Matthey’s Precious Metals Management’s (PMM’s) ‘Platinum-Group Metals Market Report May 2017’, which notes that the platinum market remained in deficit in 2016, owing to strong investment, and industrial and auto demand, which offset a contraction in demand from Chinese jewellery fabrication.

Automotive and industrial demand were at multiyear highs in 2016, while investment purchasing rose by over one-third in 2016, with exceptionally strong sales of platinum bars to Japanese investors.

Sales of platinum to automakers were at their highest level since 2008, boosted by higher European diesel car output, and the full implementation of Euro 6b emissions legislation – aimed at reducing the levels of harmful car and van exhaust emissions, both in petrol and diesel cars. Industrial consumption reached a five-year high during 2016, on the back of strong demand from Chinese glass and chemicals producers.

These gains were offset by a sharp contraction in jewellery fabrication demand in China, where weak retail activity led to destocking in the distribution chain. With primary supplies flat and limited growth in autocatalyst recycling, the market remained in a modest deficit of 202 000 oz for 2016.

PMM expects the platinum market to move into surplus in 2017 for the first time in six years on lower jewellery demand and the weaker platinum demand from the automotive and investment sectors forecast for the rest of this year.

Chinese jewellery fabrication is expected to contract again this year, while automotive demand will be hit by changes in catalyst technology in Europe, in response to the introduction of Real Driving Emissions testing to measure a car’s emissions on the road to complement lab tests. Investment demand is forecast to remain positive, but at lower levels than in the last two years, as buying by Japanese investors slows.

While industrial demand will remain firm and primary supplies and recycling are expected to drop, this is unlikely to be enough to keep the market in balance during this year, notes PMM.

Palladium

With regard to palladium, PMM notes that, owing to higher Russian supplies, coupled with weaker industrial demand, the palladium market deficit reduced last year.

PMM indicates that, in 2016, the palladium market moved closer to a supply/demand balance, despite a 23% rise in demand from Chinese automakers and lacklustre recycling activity.

Chinese automotive demand surged above two-million ounces in 2016, as a reduction in vehicle purchase taxes lifted passenger car sales by more than 15%. However, industrial demand softened, while higher prices triggered heavy profit taking by exchange-traded fund (ETF) investors. With supplies rising 5% on the back of Russian destocking, the palladium market deficit fell to 163 000 oz in 2016.

PMM expects that the palladium deficit will widen in 2017, with automotive demand at new highs and lower disinvestment, as well as a slowdown in ETF redemptions.

World automotive demand is forecast to exceed eight-million ounces for the first time in 2017, with further growth in world petroleum car production and tighter emissions legislation in China, Europe and North America. There is potential for further profit taking in the investment sector, but the rate of liquidation is predicted to slow following two years of heavy disinvestment. With firm prospects for industrial demand, especially from Chinese bulk chemicals producers, PMM predicts growth in total gross demand of more than 7% to in excess of ten-million ounces.

Although it expects the autocatalyst recycling sector to see some recovery after two years of depressed activity, primary palladium supplies are predicted to be lacklustre. As a result, the market supply deficit is forecast to widen significantly this year to 792 000 oz.