Derek Engelbrecht, marketing director, Impala Platinum
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High Pt prices threaten jewellery demand
Brendan Ryan
Posted: Thu, 14 Feb 2008

[miningmx.com] -- THIS year will see record average prices for platinum and rhodium according to Impala Platinum (Implats) marketing executive Derek Engelbrecht but he’s concerned about the medium-term impact on demand for the metals.

Speaking at today’s presentation of Implats’ interim results, Engelbrecht predicted platinum would average $1,850/oz during calendar 2008 while rhodium would average $8,000/oz and palladium $425/oz.

The comparable prices achieved by Implats on metal sales during the six months to end-December were $1,352/oz for platinum; $6,063/oz for rhodium and $355/oz for palladium.

Engelbrecht said the shortfall in platinum supplies to the market was estimated at 500,000oz for 2007 and he expected this to rise to 620,000oz for 2008.

“I don’t think the platinum inventory is there to fund two consecutive annual deficits on this scale. Something has to give and it’s likely to be jewellery demand although we are seeing a lot of recycled platinum starting to come out of Japan.

“Japanese jewellery demand has taken up some 20Moz of platinum over the past two decades. People who bought platinum previously at prices as low as $100/oz are likely to cash in at current prices around $2,000/oz."

He added the high platinum price would encourage further research by the automobile manufacturers looking at substituting cheaper palladium for platinum.

“At these prices the men in the white coats will be working feverishly to find ways of using less platinum,” Engelbrecht said.

Both platinum and palladium can be used in the autocatalyst required to clean up car engine emissions. This is now by far the largest use of platinum with automotive demand in 2007 reaching 4.13Moz and expected to reach 4.28Moz this year.

By comparison, jewellery demand amounted to 2.16Moz in 2004 but fell to 1.59Moz last year and is estimated at 1.48Moz this year.

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Palladium has, so far, had limited application in diesel engines. That’s where the bulk of future growth in the automobile sector will come from as diesel engines are far more fuel efficient than petrol engines.

Engelbrecht commented; “So far you have seen a penetration of about 10% to 15% into the diesel engine sector by palladium. That could rise to 25% to 30% over the next year or two. We just have to accept that. “

Engelbrecht stressed the remarkable resilience of Chinese demand for platinum even at these high prices. He said the drop in jewellery demand was likely to come from the United States and Europe.

China is the world’s largest consumer of platinum in jewellery. Engelbrecht commented platinum sales volumes during the month of January on the Shanghai exchange were a good indicator of demand strength because this was the period immediately before the Chinese new year.

He said January sales in Shanghai had risen from 3,300kg at an average price of $860/oz in 2005 to 8,335kg at $1,585/oz this year.

He added; “in today’s trading in Shanghai – the first after the holiday – the Chinese bough 136kg of platinum at $2,000/oz. That floored me. I had optimistically believed they might buy 5kg.“

Engelbrecht pointed out world vehicle production had risen during 2007 by 5.5% for passenger cars and 5.7% for commercial vehicles. In both categories, increases in Asian production had more than compensated for forecast declines in North American output.

“The term decoupling comes to mind,” Engelbrecht quipped referring to recent assessments by some economists that developments in the United States economy would no longer have the same global impact as previously.

Reason is the strength of domestic demand in rapidly growing Asian countries like China and India meant they were “decoupling” from the US.