The platinum price is expected to exceed $1 000/oz in the second half of this year.
“We expect the platinum price will start a recovery this year, albeit a gradual one. This is predicated on a small deficit this year, of nearly 300 000 oz, fuelled by a contraction in supply, chiefly from the South African mining sector, coupled with rising demand,” Thomson Reuters GFMS head Rhona O’Connell said in a statement.
The Thomson Reuters GFMS ‘Platinum Group Metals Survey 2018’, released on Thursday, states that despite an uptick in autocatalyst recycling and resilient mine production, platinum supply was tempered by a fall in jewellery scrap, leaving total supply almost unchanged in 2017.
In the case of mine output, O’Connell noted that the decline was owing to a combination of the sustained reduction in capital expenditure in recent years leading to a denuded pipeline of new projects, and closures from some marginal operations.
On the demand side, offtake was slightly weaker as stronger industrial demand was offset by falls in jewellery and retail investment, leaving the overall market in a physical deficit for the fourth consecutive year at 50 000 oz.
Platinum mine production inched lower in 2017, by 1%, to 5.92-million ounces, driven by lower production from South Africa, Zimbabwe and Canada.
Production disruptions in the form of maintenance work, safety stoppages, and mine suspensions were predominantly the cause of the drop in South Africa’s output.
Elsewhere, a normalisation in ore stockpiles led to losses, together with a drop in metal in mined ore.
The report highlights that platinum uptake in the production of autocatalyst applications last year rose by a healthy 7.1% to 3.48-million ounces, despite the negative sentiment from the vital diesel market in developed economies.
This was the fourth consecutive rise and saw offtake reach the highest level in a decade.
“While still the largest consuming region, Europe reduced its share of platinum demand, which reflected lower average platinum loadings, with platinum demand falling 2% to 1.4-million ounces. China was again the stand out, rising 16% in 2017,” the survey said.
Jewellery demand retreated 5% year-on-year to an estimated 2.20-million ounces, the fourth consecutive annual decline.
The biggest falls were seen in China and Europe, with fabrication in these key markets falling by 8% and 6% respectively.
Meanwhile, Thomson Reuters GFMS reports that palladium’s physical deficit edged lower to 1.20-million ounces in 2017, retreating slightly from the record level of 1.33-million ounces in 2016.
A 5% rise in total supply was partially offset by further modest gains on the demand side.
“Mine production of palladium rose by 3% to total 6.74-million ounces last year as output rose in Russia, South Africa and the US, but was capped by the losses in Canada.
“An increase in palladium content in mined ore managed to reduce the balance despite bottleneck issues in the South African platinum belt,” the report notes.
At the asset level, the largest increase was registered at Norilsk’s Russian operation led by the processing of concentrate bought from Rostec and work-in-progress material in transit from the Polar to Kola division.
Meanwhile, the report notes that the palladium price is set to exceed platinum on an annual average basis this year – a historical first.
“We also expect renewed bouts of tightness in supply to generate higher lease rates. Our longstanding bullishness for this metal remains underscored by the growth in demand from the automotive sector, which is set to continue, despite record prices, as substitution is not under way at present,” O’Connell said.
Further support is expected from declines in mine output from the two dominant producing countries, Russia and South Africa.
“That said, total supply will barely change owing to increased autocatalyst scrap and higher output from North American mines. As a result, we expect palladium to average over $1 000/oz for the first time ever this year.”