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Johnson Matthey Sees Supply Deficits For Platinum, Palladium In 2015

Editor’s note: Updating earlier story with more details from report.

(Kitco News) - The platinum and palladium markets will be in supply deficits during 2015, said Johnson Matthey Wednesday in its widely followed report on the platinum group metals.

The firm looks for a platinum supply deficit of 652,000 ounces and a palladium deficit of 427,000 ounces.

“Price weakness and poor market sentiment have overshadowed the platinum market in 2015, but underlying demand trends have been positive,” Johnson Matthey said. “Strong automotive, industrial and investment demand will outweigh a drop in purchasing by Chinese jewelers, lifting gross demand by 100,000 ounces to 8.3 million ounces.”

Automotive demand for platinum will rise 6% to 3.47 million ounces this year, the report said. This has been helped by new emissions limits in Europe and “moderate” growth in diesel car output on the continent, Johnson Matthey said.

However, global jewelry demand will fall by 9% to 2.65 million ounces, the report said. In particular, there has been a sharp decline in sales to jewelry markets in China, where the pace of retail expansion has slowed and the rate of store closures has increased.

Investment demand is expected to rise by a third to 367,000 ounces in 2015, helped by strong buying in Japan.

Meanwhile, a recovery in platinum supplies from South Africa will be partly offset by a drop in auto-catalyst recycling, the firm said.

Supplies from South Africa, the world’s largest platinum producer, are expected to recover by 20% to a four-year high of 4.3 million ounces, Johnson Matthey said. Output previously was hurt by labor issues in recent years.

“Despite expectations of disruption due to electricity shortages, and some losses due to safety stoppages, community unrest and industrial action, interruptions to production have been less significant than in recent years,” Johnson Matthey said.

Recycling has fallen, with Johnson Matthey citing less spent catalytic converters being collected, processed and refined. “Low steel and PGM prices have reduced the incentive for owners to recycle older vehicles, and have also stimulated some hoarding by scrap collectors,” Johnson Matthey said. Low platinum prices have also hit jewelry recycling, and total secondary supplies in 2015 will fall 13% to 1.81 million ounces, the company said.

“The platinum market will remain in significant fundamental deficit this year, despite the recovery in primary supplies,” Johnson Matthey said. “While investment flows remain an important factor in determining platinum’s supply-demand balance, it is worth noting that in the last two years, the market would have been in deficit even if investment demand had been zero.”

Palladium Demand To Decline Due To Impact Of ETFs

Meanwhile, the supply deficit in palladium will narrow, Johnson Matthey said.

“Palladium demand is set to fall sharply, as investment swings from strongly positive last year to significantly negative in 2015,” Johnson Matthey said. “This will greatly outweigh modest growth in auto and industrial consumption. On the supply side, a recovery in South African output will be offset by a fall in the recovery of palladium from auto-catalyst scrap, leaving combined primary and secondary supplies up only 1%.”

Total demand for palladium will fall by nearly 1.3 million ounces to 9.39 million, with all of the decline explained by changes in exchange-traded-fund holdings, Johnson Matthey said. ETFs trade like a stock but track the price of the commodity, with metal put into storage to back shares. However, during periods of investor liquidation, this means palladium comes back onto the market.

“Between January and late October, ETF investors in the USA, Europe and South Africa sold over 420,000 ounces of palladium holdings, with selling intensifying in the September-October period,” Johnson Matthey said. “Much of this disinvestment relates to perceptions of poorer prospects for palladium demand in China, in line with slower economic growth and weaker vehicle production.

“While investment remains the ‘swing’ factor in the palladium market, the automotive sector continues to
dominate consumption; sales to automakers are forecast to set a new record of 7.5 million ounces in 2015,” Johnson Matthey said. “However, the rate of growth in palladium auto demand has slackened this year, due to a slowdown in the Chinese light-duty market, and some switching from palladium back to platinum on diesel catalysts.”

Jewelry demand is seen falling by 12% due to a “collapse” of the market in China, Johnson Matthey said.

Primary supplies of palladium are forecast to rises 6% to 6.45 million ounces in 2015. Sales of palladium by South African miners will rebound strongly, reaching a four-year high, but Russian shipments are expected to fall slightly, with no further sales of government stocks, Johnson Matthey said.

The firm said it looks for secondary supply to fall by 9% to 2.52 million ounces due to falls in recycling from the automotive sector and jewelry recycling.

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

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