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Platinum deficit shrinks dramatically
Allan Seccombe
Posted: Thu, 28 Aug 2008

[miningmx.com] -- THE global platinum market should be in balance in 2009 as demand gains ground to eight million ounces by 2010, said Impala Platinum marketing director Derek Engelbrecht.

In mid-February, Impala had expected the platinum market to be in a deficit of 600,000 oz, but it is now expecting that shortfall to be just 90,000 oz, with demand at 7.455 million oz against supply of 7.365 million oz.

“How quickly life changes,” Engelbrecht told analysts at the group’s annual results presentation.
the market almost balanced
“We now see the market almost balanced with essentially a 400,000 oz drop in demand shared equally between automotive and jewellery,” he said.

Platinum is used to make autocatalysts in vehicles’ exhausts to scrub out pollutants. It is primarily used in diesel systems, while palladium is used in petroleum engines.

“The drop in demand for platinum this year has been more than compensated for by a drop in South African supply and the increase in the over supply comes from the Japanese recycled jewellery,” he added.

South African supply has drifted lower from a peak of 5.4 million oz in 2006 to a forecast 4.59 million oz in 2008 because of power constraints, safety and labour issues, and companies failing to meet their expansion targets.

There has been, in line with Impala’s expectations, a flood of recycled platinum jewellery in Japan, but that supply is starting to slow “fairly dramatically,” now that prices are below $1,500/oz, Engelbrecht said.

Asked by an analyst what his forecast for 2009 was, he said it would be in balance, but that depended on South African production.

Another source of platinum to the market was from stockpiles in Zurich, which are now below 500,000 oz, he said.

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There has been a flood of platinum, some 220,000 oz, from cashed in exchange-traded funds in the metal, bringing the size of the metal locked in the financial instrument to 275,000 oz from a peak around 494,000 oz, he said.

“There is some good news that’s come out of the carnage. Jewellery is fulfilling its classic role of buying when the prices are low,” he said. Platinum has tumbled from a high around $2,300 in March to around $1,450.

“If the current pace of (jewellery) buying continues at anything like it is doing now then our forecast for demand for the year will be way exceeded,” he said.

“Fundamental demand for platinum, while down a little in 2008, is expected to recover and go back above eight million oz by 2010.”

During a two month period, the paper markets – Nymex and Tocom – and the physical markets including the ETF, sold off between 1.5 million and two million ounces of platinum, he said.

Platinum’s sister metal palladium is seen sliding into a deficit in 2008, certainly the first time since at least 2005. The forecast is put at 295,000 oz.

“We’ve changed our view. We are forecasting a fundamental deficit for the year, this is in spite of a 400,000 oz drop in automotive usage,” Engelbrecht said.

“We are still cautiously suggesting that the era of Russian de-stocking may be at an end and this essentially accounts for the move from fundamental surplus into a deficit.”

Stocks in Zurich have fallen by some two million ounces to six million ounces, he said, and it’s this large stockpile which is preventing palladium prices from tearing higher.

The announcements of a slow down in car sales in the United States, which hit platinum prices, actually holds more relevance for the palladium market, because twice the amount of that metal is used in the auto sector compared to platinum, he said.

“On demand side, demand has not collapsed. You see stories the world has fallen down. This has not happened. We have not been inundated by our customers requesting less and less metal,” Engelbrecht said.

The rhodium market is seen moving to a balanced position after two years of deficits. “This is due entirely to a reduction in US consumption as a result of lower automotive sales in that market as well as a shift from SUVs and pickup trucks to smaller vehicles.”