EDITORIAL & OPINION — FACTS ‘N’ FIGURES — Platinum demand outstrips supply

Although economic conditions have deteriorated in 1998, demand for platinum, at 5.1 million oz., will be only 40,000 oz. below last year’s record level. Continued growth in demand for platinum jewelry in China and North America will outweigh a decline in fabrication demand in Asia, says a study by London-based Johnson Matthey.

According to Platinum 1998: Interim Report, industrial demand will be little-changed, supported by higher consumption in specialized chemical and electrical applications. The use of the metal in automobile catalysts designed to reduce pollution is on the wane, owing to the wider use of palladium-rich catalysts to meet new emissions standards in the U.S. and Europe.

The platinum price reached US$429 per oz. in April 1998, bolstered by the shortfall in Russian shipments, but retreated to a 5-year low of $355 in mid-October. Market sentiment has been influenced by concerns about the outlook for demand, especially in Japan, and fears that the financial crisis in Russia might lead to higher sales of platinum group elements.

Demand for platinum is forecast to remain stable in the year ahead. Although autocatalyst consumption is expected to decline, platinum’s use in jewelry fabrication should continue to expand. This is because demand in the Chinese and U.S. markets is showing no sign of slackening, and stock reductions by the Japanese are unlikely to recur on the same scale as this year.

Advanced technology applications will continue to support industrial use of platinum. However, the pattern of Russian sales and the market’s perception of economic trends are likely to remain the most important influences on the price, which is expected to range between US$325 and $375 per oz. over the next six months.

Overall supplies of platinum are forecast to rise by 70,000 oz., to 5 million oz., in 1998 but will be outpaced by demand by 90,000 oz.

Higher ore production and improvements in processing technology contributed to an increase in South African platinum production in 1998, with supplies forecast to rise by 50,000 oz., to 3.7 million oz. Producers continue to fine-tune their operations in order to increase recoveries and improve underground production.

Russian sales are expected to total 850,000 oz. in 1998. Export quotas have been awarded to the Ministry of Finance, which controls the government’s platinum stocks, and to Noril’sk Nickel, which has again received authorization to export its current production. The latter is also expected to sell platinum from alluvial mines in the Far East. Although total Russian platinum production is thought to have risen this year, it will fall short of exports, and government stocks will therefore be further depleted.

Sales of platinum by North American producers are expected to increase by 45,000 oz., reaching 285,000 oz. in 1998. Output at the Stillwater mine in Montana has risen following an expansion project last year, while some Canadian nickel mines continue to add to the world’s supply. Shipments from other countries are forecast to increase by 25,000 oz., to reach 155,000 oz., as the Hartley platinum mine in Zimbabwe makes a small contribution to supplies for the first time.

Overall demand for platinum in 1998 is forecast to fall to 5.1 million oz., partly because automakers are switching to palladium in the manufacture of catalysts. The worldwide industry will produce only 1.8 million oz. this year, down 70,000 oz. from 1997. However, the metal is still in wide use in the diesel sector, and demand is not expected to fall in the near future.

The use of platinum in jewelry fabrication is forecast to climb by 30,000 oz., to 2.2 million, in 1998. It has been another year of rapid growth in the Chinese market, where demand is likely to reach 500,000 oz. Fashion trends continue to favor platinum, and increasing stocks of platinum jewelry have stimulated expansion by jewellers. Several new jewelry-manufacturers emerged this year, and demand for platinum jewelry is up in the U.S. and Europe.

Advanced technology applications continue to underpin industrial demand for platinum, which, at 1.3 million oz., is not expected to change much in 1998. In the electrical sector, the metal is being used to improve storage capacity on computer hard disks. A 10% increase in worldwide disk sales has helped increase demand.

The chemicals industry will also use more platinum this year, principally due to investment in specialized processes that employ platinum catalysts. There has been further growth in the consumption of platinum in the manufacture of silicones, while significant quantities of the metal have been bought for use in a process designed to increase benzene yields.

However, the economic downturn has restricted investment in some of platinum’s traditional industrial applications, such as fibreglass and petroleum refining. Weakness in these sectors is expected to persist into 1999, but overall industrial demand should remain firm as the adoption of platinum in hard disks accelerates.