Platinum Demand Set to Full Further in 2009
Thursday, April 23, 2009
LONDON -- Platinum demand is set to fall 7-8 percent this year as car sales slump, but the drop could be greater if price volatility undermines jewellery buying, Peter Ryan, a senior consultant to metals consultancy GFMS, said.
Prices will be heavily reliant on investor interest for gains this year, as the metal's fundamental drivers are expected to weaken further, he told Reuters in an interview on the launch of the GFMS Platinum & Palladium Survey 2009.
"The whole (market) at the present time is really driven by investor interest, especially in exchange-traded funds, with allocations having risen back to the record levels we saw early last year," Ryan said.
"We have got speculative positions on NYMEX at very elevated levels at the moment as well, so there is an awful lot of investor money in the market," he said.
The expected drop in platinum demand this year should be balanced by a corresponding decline in supply as mine production eases and sales of scrap jewellery peter out.
While this would lead to a roughly unchanged market surplus this year from the 265,000 ounces it sees in 2008, a decline in jewellery buying would mean that surplus could surge to 500,000 ounces, he said.
Platinum will continue to be depressed by extreme weakness in consumption by the automotive sector, which typically accounts for over half of global demand for the metal, and other industrial users such as the electronics industry, he said.
Car sales are likely to weaken further in 2009 after a dire second half in 2008, although the market is likely to show some improvement next year, he said.
The strength of retail investment in platinum coins and bars, which was particularly high in Japan at the end of last year, is unlikely to be repeated this year, he said.
Falling car sales could lead to a shift in the make-up of platinum demand this year, Ryan said. Buying by the car sector could represent just 45-46 percent of total platinum consumption this year, he said, down from just under 50 percent in 2008.
Jewellery buying could expand to make up 25 percent of total demand, against 21 percent last year, he added.
Spot platinum's slip from its all-time high of $2,290 last year has boosted jewellery sales.
But platinum jewellery sales have also benefited from a rise in the price of gold, with some buyers choosing platinum as an alternative to the yellow metal, Ryan said.
DRIVER
Nonetheless, while jewellery demand is likely to support prices in 2009, it will do little to actively drive them higher, he said. Jewellery buying is highly price sensitive and dried up recently when the metal rose above $1,200 an ounce.
"If you are looking for the drivers that are going to get us to $1,500 an ounce and beyond, it isn't going to come from jewellery," Ryan said. "It is only going to come from investors."
Unlike gold, platinum has not traditionally been an investment target. However, it has benefited from some interest in commodities as a safe store of value.
"Gold is the number one safe haven -- platinum would have some of that cachet, but it is primarily an industrial and jewellery metal," Ryan said.
"If investors are looking at getting more into gold because they fear currency devaluation, they fear the long-term prospects for inflation and so on, then platinum will get some favourable backwash from that."
The inflow of platinum into ETFs -- which back their securities with physical metal -- has helped support prices.
But ETF stocks can easily be returned to the market, Ryan said, pointing to the large outflow of stocks from the platinum product operated by ETF Securities as prices fell last year.
On the supply side, mine production in South Africa, source of some 75 percent of platinum, is seen broadly unchanged this year, Ryan said. "The fact prices have risen from lows of last year has postponed the most pressing need to cut production."
Jewellery recycling is expected to fall significantly as prices remain relatively low.
Recycling of platinum from the automotive sector is seen higher, but is unlikely to grow at the same pace as last year due to lower steel and PGM prices.
Palladium recycling, however, is likely to see double-digit growth this year, as cars containing an increasingly high proportion of palladium reach the end of their lives, he said.
Overall supply of palladium this year is expected to remain broadly flat, however, as mine output declines.
But demand is expected to fall "quite heavily", by 8-10 percent, as autocatalyst demand for the metal falters.
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