Platinum to remain in surplus, eurozone crisis flagged as 'major' risk

3rd May 2012 By: Idéle Esterhuizen

JOHANNESBURG (miningweekly.com) – Platinum registered its seventh consecutive gross surplus in 2011 and was likely to experience a similar outcome in 2012, while palladium remained in a gross deficit, which was likely to increase this year, precious metals consultancy Thomson Reuters GFMS reported on Thursday.

In the ninth edition of its ‘Platinum & Palladium Survey’ launched in London and Johannesburg on Thursday, the consultancy forecast platinum would trade in the range of $1 475/oz to $1 775/oz over the remainder of the year.

GFMS said the rise in gold investment during the second half of 2012 could spill over into the platinum market, with prices likely to find solid support from production cost pressures in the South African mining industry. But it flagged the ongoing eurozone crisis as a “major” downside risk, given the concentration of platinum autocatalyst demand in Europe.

GFMS estimated that platinum’s gross surplus eased by some 12% last year to 735 000 oz although this remained substantial by historical standards.

“The fact that platinum prices remained elevated over much of last year, enabling a new all-time high in yearly average terms of $1 722/oz, was testament to broadly favourable investor sentiment, evidenced by a 12% rise in world investment demand,” GFMS global head of metals analytics Philip Klapwijk commented.

The narrowing of the gross surplus in platinum was largely owing to a near 7% rise in fabrication demand to a three-year high, outweighing a near 5% rise in global platinum supply last year. GFMS revealed that the gains were broadly based, led by a marked recovery in Chinese jewellery offtake, as prices declined sharply in the latter part of 2011.

Similarly, retail investment also recorded sizeable gains towards the end of the year, pushed by resurgent sales in Japan, as platinum traded below gold.

GFMS reported a 4% growth in platinum autocatalyst demand, however, this was restrained by the effects of continuing substitution (in favour of palladium), lacklustre vehicle production in Europe and a natural disaster in Japan last year.

As a result, platinum autocatalyst demand remained considerably short of pre-recession levels.

Last year’s supply growth was driven by a recovery in Canadian mine production, as Brazilian miner Vale’s operations returned to normal and mining ramped up at the Lac des Iles mine.

Meanwhile, platinum supply from autocatalyst recycling grew by close to 9% last year, a performance that might have been stronger were it not for a fourth-quarter decline in the face of weaker platinum-group metals prices.

The survey also showed that jewellery scrap rose by 11%, owing to a rise in Japanese recycling that benefited from further development of the country’s collection infrastructure.

PALLADIUM

As for palladium, GFMS revealed that in 2011 its gross deficit almost halved to 313 000 oz (9.7 t), owing in large part to a relatively subdued 2% rise in global fabrication, which nonetheless reached an 11-year high.

This featured a solid 5% lift for palladium autocatalyst demand (also an 11-year peak) driven by firmer demand in gasoline applications and substitution-related gains at the expense of platinum.

However, these gains were partially offset by weaker offtake in most other areas of palladium fabrication demand, with the heaviest losses having emerged in jewellery, especially in China, which declined to an eight-year low.

As a result, the relatively modest increase in global palladium fabrication was outstripped by a 5% rise in supply, which posted a new record high. In addition to a lift of more than 3% in mine production, this was a function of robust gains in autocatalyst recycling.

GFMS stated that palladium prices still posted a record high yearly average in 2011 of $734/oz, despite a smaller gross deficit, substantial liquidations from exchange traded fund holdings and a reduction in investors’ long-term positions on futures markets.

“This followed a dramatic rise in prices during late 2010 and early 2011. And even though last year saw palladium prices fall by 20% on an intra-year basis, the decline was limited to the last four months, and driven very much by profit taking,” Klapwijk commented.

He added that palladium prices were also likely to benefit from the favourable investor climate towards precious metals, while the downside might be limited as palladium’s demand base in autocatalysts was less exposed to Europe and was more broadly based geographically.

Overall, palladium was forecast to trade in a range of $575/oz to $775/oz through to the end of this year.