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Johnson Matthey: COVID-19 hitting both supply, demand for PGMs

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(Kitco News) - Both supply and demand for platinum group metals will suffer “significant damage” during 2020 as a result of the global COVID-19 pandemic, materials maker Johnson Matthey said in a report Monday.

However, because of the uncertainties regarding mine output and continual downgrades to production forecasts for the auto industry, Johnson Matthey opted to not list supply/demand balances or price forecasts for 2020, as it normally does.

Johnson Matthey did report that all of the markets for platinum group metals were undersupplied in 2019 – platinum by 265,000 ounces, palladium by 950,000 ounces and rhodium by 25,000 ounces. The palladium deficit widened, while platinum moved into a deficit as investment demand added over 1 million ounces to exchange-traded-fund holdings, more than offsetting a 5% decline in demand from the auto sector, the report said.

The primary use for platinum, palladium and rhodium is for automotive catalysts. Car sales are expected to suffer this year as a result of the pandemic. However, there have also been temporary mine shutdowns, including South Africa, the world’s largest platinum producer.

“The COVID-19 pandemic will inflict significant damage on PGM supply and demand in 2020,” Johnson Matthey said. “Both primary and secondary supplies will contract, due to temporary shutdowns at many mining operations, and disruption to the collection and refining of PGM-containing scrap.

“Auto-catalyst PGM demand will fall steeply, reflecting short-term closures at most major automotive plants and a sharp contraction in consumer demand for new vehicles. The jewelry market is also expected to be badly hit, although weak platinum prices in March stimulated inventory building by the Chinese distribution chain.”

But while supply and demand will be hurt, it is also difficult to quantify the impacts at the moment amid the economic uncertainty brought about by government actions to combat COVID-19, Johnson Matthey said.

“Given these extreme levels of uncertainty, we do not believe that it is possible to make a meaningful prediction of market balance this year,” Johnson Matthey said.

By late March, analysts said there appeared to be regional divergences in the impact.

“In particular, demand from Asia began to return, at a time when primary miners, secondary refiners and inventory holders located in South Africa, Europe and North America were reducing activity levels and encountering logistical difficulties in making shipments,” Johnson Matthey said.

Transportation of refined PGMs became yet another issue for the market to deal with, analysts pointed out.

“During March and April 2020, an abrupt decline in the number of flights available, and hence in air freight capacity, caused serious disruption to metal shipments, both from South Africa to customers in the northern hemisphere, and also from trading hubs such as London and Zurich into Asia,” Johnson Matthey said.

“During March and early April 2020, this severe disruption to international PGM trade resulted in a mismatch between the location of demand, primarily from Asian economies recovering from COVID-19 disruption, and of refined PGM production and stocks, mainly in South Africa, North America and Europe. This has probably helped support prices for palladium and rhodium, despite a steep fall in PGM demand in Western economies.”

In the case of platinum, analysts said there were signs of a discrepancy between the form of metal available and the requirements of consumers, with ample sponge but limited ingot.

PGM demand from automotive and industrial consumers is expected to fall steeply this year, Johnson Matthey said.

“Automotive consumption will be especially badly hit, with temporary plant closures hitting production during the first half of the year and consumers’ appetite for big-ticket purchases likely to remain depressed for the remainder of the year,” the firm said.

During the first quarter, world light-duty vehicle production and sales are estimated to have fallen by around 25% and 20%, respectively, compared to the same period of 2019, the company said. Most of this was the direct result of COVID-19, with sales and production in No. 1 car consumer China contracting by more than 80% in February.

Significant disruptions in Western auto markets did not occur until late in the first quarter, Johnson Matthey said. In fact, the company said there was an increase in North American vehicle sales and output during January and February as the market recovered from last year’s seven-week strike at General Motors, before those these gains were reversed in March.

“Demand for physical investment bars in Japan set an all-time record in March 2020, with private investors estimated to have bought around 200,000 ounces of platinum in a single month,” the report said. “This activity was consistent with past investor behavior in the Japanese market; steep declines in price tend to stimulate buying, especially when important psychological price levels are breached.”

However, second-quarter investment is likely to be weaker, due to a higher price in yen terms and the government closing retail counters during the pandemic, Johnson Matthey said.

Meanwhile, lost production in the mining sector is likely to be greatest for platinum and rhodium, with palladium least affected, Johnson Matthey said. Output in key producer South Africa has not only been affected by the mine shutdowns but a temporary closure of the Anglo American Platinum converter plant due to an explosion and technical issues. Meanwhile, there have been no reported output interruptions by Russia’s Norilsk Nickel, which is a key palladium producer, Johnson Matthey said.

“While it is difficult to make a precise assessment of production losses at this stage, we expect mine PGM output in South Africa to fall by at least 20% in 2020; the rate of decline in palladium output will be slightly lower than for platinum, while rhodium will be the most affected of the three auto-catalyst PGM [markets],” Johnson Matthey said. “Even once mines are permitted to operate at normal levels, the ramp-up will take some time and – particularly in labor-intensive settings – volumes will be constrained by safety measures implemented to reduce the risk of virus transmission between workers.”

Platinum Investment Demand Jumps in 2019

Johnson Matthey Platinum Group Metal February 2020 report. Released May 2020. Platinum demand amounts in '000 oz. in Charting supply data from summary. Source: Johnson Matthey.

2017201820193,2082,3872,0383612,9672,2612,493672,9132,0822,3581,131AutocatalystJewelryIndustrialInvestment


Platinum Supply Holds Steady in 2019

Johnson Matthey Platinum Group Metal February 2020 report. Released May 2020. Platinum supply amounts in '000 oz. in Charting supply data from summary. Source: Johnson Matthey.

2017201820194,4507209694,4676879564,411667942South AfricaRussiaOthers

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