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Global platinum demand expected to increase marginally in 2018

DRIVING DEMAND The Chinese jewellery market is expected to experience a resurgence, while the percentage of jewellery demand in India is growing by double digits

DRIVING DEMAND The Chinese jewellery market is expected to experience a resurgence, while the percentage of jewellery demand in India is growing by double digits

Photo by Bloomberg

8th March 2018

By: Nadine James

Features Deputy Editor

     

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JOHANNESBURG (miningweekly.com) – Global platinum demand is expected to increase marginally this year, based on a 2% recovery in jewellery demand in Asian markets, as well as a 6% demand increase for industrial applications.

This combined with a 2% decline in supply, owed to mine closures in South Africa, will have resulted in a  “tighter 2018”, says the World Platinum Investment Council (WPIC).

The WPIC released its quarterly report on Thursday, noting that South African production outperformed expectations in fourth quarter, contributing to a slight surplus for the year ending 2017. Other contributing factors included a higher supply of recycled platinum material, and the processing of pipeline material from 2016 by miners, WPIC research director Trevor Raymond told Mining Weekly Online.

The 3% rise in refined production to 4.3-milliion ounces in South Africa outweighed lower output from Zimbabwe and North America. Autocatalyst recycling also grew by 9% to 1.3-million ounces.

Raymond added that demand in 2017 declined by about 7%, but that some of the trends affecting demand had reversed, resulting in a more positive forecast for this year.

TRENDS AFFECTING DEMAND
Raymond explained that demand from the Chinese jewellery market remained fairly flat for the last three years, owing to changes in the citizen’s buying habits resulting in a cumulative decline in demand for both gold (about 40%) and platinum (about 27%).

The trend has seemingly reversed, and the Chinese jewellery market is expected to experience a resurgence. Further, the percentage of jewellery demand in India is growing by “double digits”, and unlike other countries, platinum is not competing directly with gold in that market.

Raymond attributed the lack of competition to platinum being of modern significance to Indian citizens, linked to love.

Meanwhile, demand for industrial applications, is following a somewhat cyclical trend.  “In 2016 industrial demand accounted for 1.79-million ounces, in 2017 demand dropped to 1.65-million ounces. This year demand is expected to climb to 1.75-million ounces.”

Raymond explained that these fluctuations are owed to the nature of platinum demand in industrial applications. “Building a new chemical plant, for example, may require 20 000 oz of platinum (a new catalyst load) . . . whereas running that chemical plant may require about 2 000 oz of platinum a year, depending on the throughput of the plant.”

He noted that industrial demand figures fluctuated depending on the number of new chemical projects, but that longer term demand was fairly predictable, and that, over a five-year trend, there is an upward correlation with global growth.

Raymond commented that demand for investment and automotive markets had declined in 2017. However, he explained that while investment demand had declined, it is not necessarily a reflection of a saturated market, adding that there were exciting opportunities in China and Japan for more investors to own platinum.

In light of this, the WPIC last year established offices in Shanghai. Raymond described the Chinese investment market as important and added that the potential was significant as it would be growing from a base of almost zero.

Additionally, he noted that China’s approach to “new energy vehicles”, could counter the decline in platinum demand from the automotive market.

“While China has adopted and continues to look into the use of battery-electric vehicles . . .  the government has recognised the limited of range these vehicles have, and has recently increased incentives for fuel cell-electric vehicles for both light- and heavy duty-vehicles.”

He added that Chinese light-vehicles primary use petrol but that Chinese automotive demand for platinum could further increase, owing to the concerns regarding availability of palladium and its price (which is almost level with platinum at present).

Palladium is typically used in autocatalysts for petrol vehicles. Raymond notes that, “if manufacturers replace 20% of palladium with platinum, that would result in an increase in demand of over 400 000 oz.”

Further, he noted that the recent ruling by a German court that would allow cities to ban diesel vehicles, would likely result in manufacturers retrofitting vehicles which could have a positive impact on demand. Additionally, the WPIC believes that the negative impact on platinum demand from European Union diesel cars is often overstated.

TRENDS AFFECTING SUPPLY
The WPIC quarterly report shows that overall supply is expected to decline, as refined production in South Africa is expected to drop by 4%, largely owing to mine closures in 2017, and the fact that the unprocessed platinum stock from 2016 will not be repeated.

While it is not evident in the current forecast, Raymond and the WPIC expect that the recent inaugurations of South Africa President Cyril Ramaphosa, and Zimbabwe President Emmerson Mnangagwa, could have some positive implications for their respective countries and, subsequently, their mining industries.  Raymond suggested that any effect on supply would be minimal in the shorter term.

“Zimbabwe, for example, has been a consistent producer for years, despite the political environment, contributing about 7.5% of the global platinum production. As such any increased supply from Zimbabwean operations will have a marginal impact on global supply.”

Moreover, Raymond noted that while supply from recycled material – which has increased 3% year-on-year – was expected to continue growing, the increase would be gradual.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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