Platinum plunged into surplus as inventories weigh

[] – METAL inventories continued to weigh heavily on the
platinum market pushing it into a 430,000 oz surplus in 2011, according to Johnson
Matthey, the UK semi-fabricator and market consultancy.

Commenting in its Platinum 2012 report, which traditionally kicks off Platinum Week
in London where the world’s platinum companies gather for the annual talk shop,
Johnson Matthey said platinum was expected to remain in a surplus for 2012.

As a result, the platinum price would trade in a $1,450 to $1,750/oz range in the next
six months, averaging $1,600/oz. This is well below the level Neville Nicolau, Anglo
Platinum CEO, said was necessary to encourage new mines investment.

Inventories were a factor for the palladium market in 2011 as well, according to
Johnson Matthey, although one more major sell-off of Russian stockpiles was unlikely
to impede a swing back into deficit. The palladium price was expected to trade in a
$620 and $800/oz band, averaging $715/oz in the next six months.

These market views, especially of platinum, agree with the bearishness of Thomson
Reuters GFMS which said earlier this month a platinum stockpile of about 4.5 million
oz would influence the metal’s price for years to come.

Platinum supplies increased to a four-year high of 6.48 million oz in 2011, Johnson
Matthey said following “releases of metal from inventories” from South Africa which
offset a 120,000 oz year-on-year reduction in primary production. Total South African
platinum production was therefore 5% higher in 2011 at 4.86 million oz.

As Thomson Reuters GFMS noted, recycling of platinum was a factor in the year while
production also ramped up in North American following shutdowns in 2010. Additional
production in Zimbabwe also contributed to the platinum surplus.

On the platinum demand side, offtake was predictably poor for autocatalysts in light
commercial vehicles (3.11 million oz) although industrial consumption of platinum, in
goods such as electronics, increased more than a sixth to 2.05 million oz.

investment demand was also higher year-on-year, but the appetite for platinum seen
in 2010 was now well behind the market. Platinum demand from the jewellery sector
came in at 2.48 million oz, some 2% higher at 1.68 million oz in China.

Johnson Matthey said further improvements in demand from this source turned on
how China’s economy, affected by inflation, fared.


The palladium market was also in oversupply in 2011 with some 1.26 million oz more
metal than could be consumed. Year-on-year, however, palladium supplies were flat
at a total of 7.36 million oz.

The extra supply came largely from the drawdown on Russian inventories but Johnson
Matthey observed that the volumes from Russia were lower than normal supporting a
view that significant inventory sales were unlikely in the future.

The major feature of the palladium market in 2011 was the withdrawal of significant
investment demand. “The year-on-year decline … was primarily due to the
investment sector switching from extremely high net demand in 2010, of over one
million oz, to effectively supplying over half a million ounces back to the market,”
Johnson Matthey said.

Looking forward, Johnson Matthey said further sales from Russian state stocks were
likely, albeit at lower levels and which will represent the bulk of the remaining
government-controlled inventories.

Gross demand for palladium in autocatalysts was expected to rise in line with higher
gasoline vehicle output and greater use of the metal in light duty diesel emissions
control systems, resulting in a modest increase in overall gross demand and pushing
the market into a deficit, it said.