Platinum Futures Index (PLATINUM)

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UPDATE: Johnson Matthey: Platinum Market Close To Balanced In 2010

16 May 2011, 01:18 p.m.
By Kitco News
http://www.kitco.com/

http://www.kitco.com/reports/KitcoNews20110513ASKN_jm_plat.html

(Kitco News) - (Updates earlier story with fifth paragraph comparing balance to GFMS report earlier this month)

The global platinum market was close to balanced in 2010 as the surplus narrowed to 20,000 ounces from 635,000 in 2009, said Johnson Matthey in its “Platinum 2011” report released Monday.

Supplies rose, and there was a pronounced increase in recycling, but the market ended up nearly balanced anyway due to resurgence in automotive and other industrial demand, Johnson Matthey said.

Growth in auto and industrial demand is expected to continue, with a limited expansion in supplies, Johnson Matthey said. Against this backdrop, the company forecast that the price of platinum will average $1,870 per ounce in the next six months, compared with an average of $1,762 during the six months to the end of April.

“With positive supply-demand fundamentals and continuing global economic growth, platinum could trade as high as $2,000 in the period,” Johnson Matthey said. “If interest rates in key markets remain low, speculative investment interest should also support platinum’s price. Although external shocks such as oil price rises or negative sentiment surrounding sovereign debt could once again prove to be a drag on the price, strong physical buying in China is likely to give support during price dips, meaning platinum is unlikely to fall below $1,750.”

At first glance, the report of a 20,000-ounce surplus appears vastly different from GFMS’ forecast of a 962,000 surplus for 2010 reported earlier this month. However, investment was treated differently in the two reports, with GFMS calculating the surplus before investment and Johnson Matthey calculating the balance after investment demand. Otherwise, the GFMS report showed a much smaller “residual” surplus of 412,000 ounces after subtracting 550,000 ounces in demand for exchange-traded funds.

The Johnson Matthey report said that as the global economy recovered in 2010, gross demand for platinum increased by 16% to 7.88 million ounces, according to the Platinum 2011 report.

Global supply of platinum from mining operations rose 0.6% to 6.06 million ounces, while recycling of platinum rose by almost a third to 1.84 million ounces.

Global mine supplies increased by just 35,000 ounces in 2010 in what Johnson Matthey described as a mixed year for producers. Although refined production in South Africa rose, not all of this metal was shipped by year-end, leading to sales of platinum from South Africa that remained flat at 4.64 million ounces. Russian platinum shipments climbed by 5% to 825,000 ounces. Supplies from Zimbabwe grew by almost a quarter to 280,000 ounces following a ramp-up of expansion projects in the country.

Auto, Other Industrial Demand For Platinum Rises In 2010

Demand for platinum in auto catalysts rose by 43% to 3.13 million ounces last year as the global automotive sector bounced back from a weak 2009, Johnson Matthey reported. In particular, this was boosted by a recovery of demand for diesel-powered vehicles in Europe, said Tim Murray, general manager of precious metals marketing for Johnson Matthey.

“Platinum is the dominant metal used in diesel technology,” he said. “So the fact the diesel market recovered from its lows of late 2008 and all of 2009 really helped platinum demand.”

Better economic conditions led to increased purchases of fleet vehicles, which tend to be diesel-powered vehicles, and the end of national car-scrapping programs meant those vehicles recaptured market share, Johnson Matthey said.

“In addition to auto-catalyst demand, you also had strong demand on the industrial side...specifically in the areas of LCD glass and also chemical catalysts coming out of Asia,” Murray said.

The industrial demand for platinum jumped by 48% to 1.69 million ounces in 2010, the report said.

Economic recovery in developed markets, and strong growth in emerging ones, drove higher levels of production of electrical, glass and chemical products which use platinum either in the finished item or in the manufacturing process, Johnson Matthey said. There was a strong increase in purchases of platinum for the manufacture of LCD glass, used in televisions and electronic displays. Demand for platinum in the chemical industry increased as plants were run at higher capacity to supply the growing markets of India and China.

However, purchases of platinum by the jewelry sector fell by 14% to 2.42 million ounces in 2010. Still, demand from the key Chinese jewelry market was still considered robust at 1.65 million ounces, although this was down 430,000 compared to a record level in 2009. A combination of higher metal prices and full stock levels contributed to the decline. However, demand in China was higher than in 2008, the last time platinum’s price was at similarly high levels to 2010.

Net Physical Investment In Platinum Remained Strong In 2010

Net physical investment demand for platinum remained strong in 2010 at 650,000 ounces, which was similar to the previous year, Johnson Matthey said. This was stimulated by low interest rates and a positive outlook for supply-demand fundamentals.

Investors bought heavily into a newly launched physically-backed platinum exchange-traded fund in North America. Holdings in the more mature European ETFs declined slightly.

Johnson Matthey looks for investment demand to rise further in 2011, although the pace of the increase will be less than last year simply because much of the pent-up demand already occurred after the ETF launch in the U.S.

“The investment sector is probably going to cool off a bit only because we saw such explosive growth with the launch of the ETF Securities product (in the U.S.),” Murray said. He later added: “We expect to see net investment demand grow in terms of physical holdings in the products themselves. But you’re not going to see that straight line up like you saw beginning in January 2010.”

By Allen Sykora of Kitco News; [e-mail]