Tom Kendall, Johnson Matthey
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» Platinum ETF will face resistance
» SA mines hold Pt deficit in hands
» JM wins precious metal bill concessions
» Platinum to burst $1000 barrier


Platinum’s eternal sunshine
David McKay
Posted: Mon, 20 Nov 2006

[miningmx.com] -- BRITAIN’S Johnson Matthey (JM) sought to reassure investors last week that all was well with the platinum market. According to the research house, demand remains solid even if the once under-supplied platinum market is now nearly in balance.

According to JM’s predictions, last year’s 40,000 oz deficit will be halved in 2006, an amount Anglo Platinum can produce in days. The trouble is, many other platinum producers in South Africa are also trying to increase output at the same time.

If expansions by African Platinum, Eland Platinum and Barplats succeed, some 700,000 oz/year of new platinum market will crowd on to the market in the medium-term. As all mining market watchers know, this metal might not reach the market. But you’ve got to wonder whether there’s a risk the oven metre is set too high in the platinum market.

Tom Kendall, author of JM’s interim report, argues that the increased use of platinum in the autocatalysts of light diesel-powered vehicles is just one reason the metal’s price is well supported. The nature of the jewellery market is another. Should the platinum price dip below $1,000/oz, manufactuers will flood back in a release of ‘pent-up demand’.

A distinction also needs to be made between manufacturers and consumers. The latter still desire platinum jewellery notwithstanding a forecast 11% decline in platinum jewellery sales this year. Since 2002, there’s been a 200% plus increase in the platinum price, but only a 30% decline in jewellery demand. “It’s not a bad result. There’s a solid core in the bridal market in China,” says Kendall.

“The industry as a whole needs extra metal to come through and the prices are encouraging this,” he said.

But asked by an JP Morgan analyst at the presentation whether the platinum market might not become swamped, Kendall simply said ‘No’. JP Morgan wondered at the flippancy of this remark.

So why the confidence amid the doubters?
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The market doesn’t like exogenous factors hanging a pall. In the late Nineties, all the talk was about how large Russian inventories of platinum might be. The apparently unpredictable sale of this metal which, at the time, was being used to finance Russia’s military activity, was a major confidence dampner. Not so now in platinum.

The situation is completely different for palladium. Here, Russian inventories do still exist and there’s no knowing how much will hit the market from year-to-year. Maybe another 1 million oz in 2007. Consequently, the prospect of a palladium price rally is deemed unlikely by Kendall.