PGM markets undergo shifts: report

Last year, platinum group metals (PGM) markets continued to experience wild shifts in supply, demand, and price, a trend that is likely to continue, according to Platinum Group Metals Survey 2002. The report was published by New York, N.Y.-based CPM Group, a precious metals research firm.

Meanwhile, market liquidity continues to contract, with fewer banks, brokers, and dealers participating in the PGM market and trading volumes off sharply in the major markets in London, Tokyo and New York City. The forward and option markets for platinum and palladium at times have been virtually non-existent, limiting companies’ abilities to hedge their sales and purchases, and forcing transactions into the spot market. This, in turn, has boosted volatility in spot prices.

While Investor interest in gold and silver investments is rising as a result of economic and financial market uncertainties, investment in PGMs has been constrained by the comparative size of these markets, the unavailability of metals for investors, and a reduction in marketing efforts of platinum investment products.

In this environment, speculative trades have wielded a significant influence on price and market activity, and were responsible for much of the volatility in 2001 and 2002. In the broader precious metals complex, banks and traders continue to shutter or reduce their operations, causing liquidity to evaporate.

Platinum prices averaged US$528.23 in 2001, down 1.3% from the previous year. The high for the year of US$637.10 occurred in early January, whereas a low of US$410.10 was set in late October. In the first five months of 2002, prices averaged US$506.12, down 15.4% from the year-earlier period.

Total platinum supply rose an estimated 10.3% in 2001 and is projected to rise a further 10.5% this year, to 5.95 million oz. Sharply higher mine production and moderate increases in Russian exports were behind the increases last year, and the same is expected in 2002.

After rising 2.4% in 2001, fabrication demand growth could accelerate in 2002, perhaps as much as 5.5% to 5.3 million oz.

Jewelry use deteriorated sharply last year, and may post only mild growth this year; auto demand remains strong as a result of producers’ shifting toward platinum and rhodium and away from palladium in the manufacture of catalytic converters.

Investment demand remains weak, hurt by high and volatile prices, low market liquidity, a persistent backwardation (which makes it prohibitively risky for many coin dealers and retailers to hold platinum inventories), and a reduction in marketing efforts.

The platinum market shifted from a deficit in 2000 to a net surplus in 2001 of 363,000 oz. This year the surplus could expand to 651,000 oz.

In the palladium market, prices averaged US$605.63 per oz. in 2001, down 11.7% from US$685.65 per oz. in 2000. The price reached a record US$1,082.80 per oz. in early February, far surpassing the previous peak of US$317.50 per oz. set in March 1980. The low for the year was hit in November as the settlement price arrived at US$315.00 per oz. Through May 2002, palladium averaged US$377.43 per oz., off 37.7% from the year-earlier period.

Total palladium supply could see the growth rate taper to 4% this year, bringing supply to 6.7 million oz.

An 18.2% increase in mine output of palladium is partially offset by a 17.8% decline in secondary supply. This compares with a 9.7% increase in total supply in 2001. Fabrication demand could well rebound 6.6% to 4.95 million oz. this year, following last year’s 30.4% contraction. The sharp drop was a combination of poor business conditions in palladium-using industries, most notably in semiconductors, electronics and auto manufacturing.

A net surplus re-emerged in the palladium market last year, soaring to a record 1.8 million oz. A surplus is expected to continue this year, but it could contract slightly to 1.7 million oz. in 2002. This is still historically wide, and may weigh on palladium prices through the remainder of the year.

Rhodium prices averaged US$1,478 per oz. in 2001, down 18.9% from 2000’s average price of US$1,833 per oz. Rhodium prices followed the trend of platinum and palladium, posting the high for the year early on and falling thereafter. The high of US$2,150 per oz. was reached in February 2001. In the first four months of 2002, rhodium prices averaged US$918 per oz., down 52.9% from the corresponding period of the previous year.

Total rhodium supply has been increasing sharply, rising 16.6% in 2001 to 575,250 oz., and could climb another 12.5% in 2002 to reach nearly 650,000 oz. in 2002.

All sources of rhodium supply are expanding. Fabrication demand is slated to rise 3.2% to 514,200 oz., compared with last year’s 9.3% decline.

The net surplus in the rhodium market may expand to a record 132,946 oz. in 2002, compared with last year’s significant 77,150-oz. surplus.

CPM Group’s Platinum Group Metals Survey 2002 is available from CPM Group for US$150. The 204-page report may be ordered online at www.cpmgroup.com