Platinum demand to hit highest level in 4 yrs at 8.08Moz
(Commodity Online): Both Platinum and Palladium settled marginally below the previous session’s close following the release of the Johnson Matthey (JM) Platinum 2011 Interim Review on Tuesday.
In line with Barclays own expectations, JM expects both markets to move into surplus this year, by 195koz in platinum and 725koz in palladium (above Barclays own estimates) as growth in supply outpaces healthy demand.
Platinum demand is expected to grow to its highest level in four years at 8.08Moz, with industrial demand at a record high driven by glass manufacturing as new LCD glass melting tanks are installed in addition to new petroleum refining capacity, said Barclays Capital. Demand from the auto sector is led by heavy-duty diesel emissions control offsetting further substitution of platinum by palladium, while jewellery demand has benefited from restocking by manufacturers and retailers following Gold trading at a premium to platinum.
In contrast, higher prices have capped interest in palladium jewellery but palladium auto and industrial demand has continued to grow supported in part by the full implementation of Euro V in lightduty vehicles in Europe and production is expected to return to pre-earthquake levels in Japan by year-end.
However, supply strength has been stronger with growth in South Africa despite strike action and safety related stoppages, the new Unki mine ramping up ahead of schedule in Zimbabwe and Vale’s Sudbury mine recovering production after a year-long strike in North America.
Russia’s mine output is expected to be flat, but JM notes that state stock releases estimated at 750koz are set to keep the Palladium market in surplus. Investment demand has also turned negative for palladium, and JM estimates net supply of 215koz.
Palladium ETP net outflows have exceeded 450koz so far this year while Russian shipments into Switzerland are currently just over 300koz. Stock releases are expected to fall next year while investor interest is expected to recover.
Thus, in keeping with Barclays views, JM expects the palladium market to be fundamentally in deficit in 2012, barring negative economic reverberations, but Platinum to remain in a modest surplus. A weaker rand currently provides some respite to the cost of production of platinum, but should it strengthen, cost pressures are likely to provide more support given the above-inflation wage settlements and rising power.
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