Slump in autocatalyst platinum market

Reports

Almost as much platinum is likely to be used in jewellery this year (2.45Moz) as consumed in catalytic converters (2.48Moz). This follows an astonishing 80% jump in demand for the former and a 33% slump in usage of the latter.

Net jewellery consumption of platinum has soared thanks to record buying in China, with demand "ignited" by the lower metal price. On the other hand, a sharp reduction in vehicle production has been exacerbated by a short-term decline in the market share of diesel passenger cars (for which platinum catalytic converters are particularly effective).

These are the main highlights from Johnson Matthey's Interim Review of this year's platinum market. The report concludes that net global demand for the metal will fall 4.4% to 5.92Moz in 2009. In addition to the collapse in demand for autocatalysts, there has been a fall in demand for other industrial uses because of 'soft' consumer consumption and destocking. However, the lower platinum price has boosted interest in investment, with physical demand reaching 0.63Moz.

The supply of platinum is expected to rise 110,000oz (1.9%) to 6.06Moz despite a fall in underlying mine production. South African output has been particularly affected, hit by a mixture of accidents and industrial unrest. However, the sale of refined metal from stocks means that overall supplies from South Africa are expected to be 210,000oz higher at 4.73Moz. Platinum supplies from Russia and North America are set to fall to 745,000oz and 255,000oz, respectively.

With supply rising and demand slipping, the platinum market is forecast to be in surplus by 140,000oz in 2009. This follows small deficits in 2007 and 2008. Although the overall margins in all three years have been small, there are important underlying changes in the market for the metal.

In China, the demand for platinum jewellery is expected to reach 1.75Moz this year. Johnson Matthey says that the lower prices "provided retailers and wholesalers with the opportunity to replenish and expand stocks". Johnson Matthey describes the increase in demand, especially in the first half of this year, as "dizzying".

Net Japanese platinum jewellery demand has also soared - up 255,000oz to 310,000oz. Much of this is attributed to a sharp fall in recycled jewellery (475,000oz to 230,000oz) because of the lower price. In contrast, the European and North American jewellery and watch industries have struggled with the effects of the financial crisis. Purchases of platinum for jewellery in these two regions are expected to fall this year by 8% and 28% to 185,000oz and 140,000oz, respectively.

The general manager of market research for Johnson Matthey, Peter Duncan, told Mining Journal that platinum had overtaken white gold in many jewellery markets. The metal was in demand for its colour and as a store of wealth. The latter factor is particularly important in China, which has very high saving rates but poor banking and investing infrastructure.

Mr Duncan also noted that much of the increased international interest in physical investment could be attributed to the growth in exchange-traded funds. With regard to China, he conceded that it is not yet certain to what extent the metal flowing into the country is for public, strategic, purposes rather than private investment or consumption.

Looking ahead to 2010, Johnson Matthey expects "some recovery in automotive and industrial demand for platinum", and notes that "supplies are not likely to grow to the same extent". Mr Duncan anticipates a "modest expansion" in production (three new mines came on stream in South Africa this year and will reach full capacity in 2010) but does not see any step-changes in capacity.

In forecasting a "modest deficit" in 2010, Johnson Matthey says that "positive fundamentals will support the platinum price". The company expects platinum to trade between US$1,280 and US$1,550/oz next year, depending on the value of the US currency.