Platinum, palladium markets to remain in deficit: Johnson Matthey

The markets for platinum and palladium will likely be in a deficit in 2014, according to a report by London-based Johnson Matthey.

The global specialty chemicals firm predicts the shortfall in platinum supply will grow to 605,000 oz. in 2013, up from 340,000 oz. in 2012. This shortage should carry into 2014, marking the third consecutive year of supply constraints.

The demand for platinum is expected to climb nearly 5% to a record 8.42 million oz., largely due to the robust offtake by exchange-traded fund (ETF) investors and industrial users. Of note, the first rand-dominated platinum ETF that was launched earlier this year in South Africa is set to lift investment demand by 68% to a record 765,000 oz.

Meanwhile, industrial demand is slated to climb 12% to 1.79 million oz. this year, on the back of “strong chemical offtake and a recovery in the glass and electrical sectors,” the report states.

The favourable investor and industrial gains have more than compensated the softer demand in the jewellery and automotive sectors. Platinum demand in jewellery is forecast to dip 1.4% to 2.74 million oz., as Chinese jewellers pull back, although it still remains at “historically high levels.”

Autocatalyst demand for platinum is estimated to fall 2% this year to 3.13 million oz., due to a weakness in European diesel car markets, mainly for light-duty diesel cars. However, platinum use in heavy-duty vehicles is expected to rise, as more diesel trucks are being bought.

Global platinum supply should improve by 2% to 5.74 million oz. this year, with little recovery from mines in South Africa, which produce most of the world’s platinum. Johnson Matthey estimates supplies from South Africa should improve by less than 1% to 4.2 million oz. in 2013. It notes 10,000 oz. were lost in the first half of 2013 in South Africa due to strikes and safety stoppages, compared to 750,000 oz. that were lost last year from similar disturbances.

Secondary supply, which comes from recycling platinum in finished products, is slated to grow slightly to 2.08 million oz.

But the report predicts primary supplies are unlikely to catch up with the strong demand in 2014. It forecasts the outlook for industrial and jewelry demand should remain robust next year, while investment offtake could cool off, compared to 2013’s record.

Unfortunately, the expected deficit in 2014 will do little to bolster the spot price for platinum. BMO Capital Markets analysts predict platinum to average US$1,490 per oz. this year, before dipping to US$1,400 per oz. in 2014. The price is expected to recover to US$1,500 in 2015. Platinum last year averaged US$1,554 per oz.

Palladium

Johnson Matthey predicts a 740,000 oz. supply deficit in the palladium market this year, despite a narrowing gap between supply and demand.

The report anticipates primary supplies to slip 1.5% to 6.43 million oz., largely due to lower sales from Russian government-controlled inventories.

Mine production in South Africa should slightly improve, while a bigger boost is anticipated in Zimbabwe. Meanwhile in North America, palladium produced as a by-product of nickel should rise.

Global demand for palladium should retreat 3.4% in 2013 to 9.63 million oz. despite an upswing in the automotive sector, fuelled by growth in the Chinese car market. Total palladium used in autocatalysts should lift 4% to 6.97 million oz. this year.

But the strong palladium demand is not seen in other sectors. Industrial demand is forecast to slide 6.6% to 2.2 million oz. — the lowest since 2004 — as palladium is substituted by base metals in electronics and by ceramics and other non-precious alloys in dentistry.

Palladium used in jewellery this year is set to fall 12.4% to a 10-year low of 390,000 oz., mainly due to palladium’s falling market share in China.

The metal has also lost investor appeal, with investment demand forecast to sink to 75,000 oz. in 2013, from 470,000 oz. last year.

Recycling should grow 7% to 2.46 million oz. this year.

The sector trends in the palladium market should continue into 2014. However, the report cautions that if a rand-denominated palladium ETF opens next year, it will bump up demand from South African investors, further pushing the market into a deficit.

BMO analysts predict the palladium price will average US$720 per oz. in 2013 and US$700 per oz. in 2014 and 2015.

The palladium price last year was US$642 per oz.