* Platinum is forecast to average $1,457/oz this year, a 2% decline compared with the 2013 average of $1.487. The sustained strike action in the South African platinum mining industry has not fed through to noticeably higher prices thus far this year, but is expected to lead to increases in the second half-year - even if the strike comes to an end soon. There is, though, a risk of "knee-jerk" falls when strike action ends, and some downward pressure from drifting gold prices in mid-year.
* Palladium is believed to have bottomed out already in 2014 and robust demand is expected to propel the price towards a test of $930 before year-end. This year's average is forecast at $793/oz, a gain of 9% over the 2013 average of $725.
* Platinum production losses through South African strike action are estimated at more than 0.60 Moz and even if an agreement is reached imminently, further losses will accrue as a result of absenteeism, underground 'safe-start' preparation, re-training and ramp-ups, which we expect to exceed 0.30 Moz (9.3 t), with associated total losses to palladium concomitantly lower at around 0.45 Moz (14 t).
* These projected total platinum losses are equivalent to seven weeks-worth of 2013 world demand, and will help to send platinum back into a deficit this year after a surplus in 2013. The associated palladium losses are equivalent to two weeks' global demand at 2013 rates and will help to keep palladium in a deficit in 2014, for the eighth consecutive year.
* The spike in the premia of both platinum and palladium in sponge form over ingot in 2014 reflect a clearly tightening market and of industrial customers keen to maintain inventory for near-term use.
* Although considered by GFMS as the movement of pre-existing stock, palladium has also been influenced by the highly successful launch of two South African rand-denominated palladium ETFs, which by 23rd April had accumulated holdings in excess of 0.41 Moz (12.9 t). Meanwhile, GFMS does not expect further shipments of palladium stock from Russia this year, further emphasising the market deficit.
Thomson Reuters today released the GFMS Platinum & Palladium Survey 2014. Now representing the report's 11th edition, this year's Survey sees the platinum market last year in a surplus (prior to inventory movements) of 0.49 Moz, although the market is expected to revert to a deficit in 2014, driven by the disruption in the South African platinum mining sector, which typically accounts for more than 70% of world mined platinum supply. Although production remained substantially below pre-2012 levels last year, Thomson Reuters believes that producers in aggregate ended 2013 with a position of finished metal inventory above 'normal' operational levels and have been able to begin to release this to customers during April to meet delivery needs. Market shortfalls seem likely in the case of both metals for several months after any resolution. The price impact relative to the severity of market events has been benign in early 2014, particularly in the case of platinum, but Thomson Reuters expects to see further price upside as metal supplies remain constrained into the second half.
The events between Russia and Ukraine in early 2014 have provided additional concerns around supply, in that there is a chance that western diplomatic measures could see a broader emplacement of sanctions on Russia that may threaten the continuity of export of platinum and palladium. The base case expectation is that this will not happen, but it is recognised that these events will continue to provide a risk premium, especially to palladium.
Elsewhere on the supply side, the production of secondary material continues to increase. In 2013, supply from platinum autocatalyst scrap rose by 9% to 0.99 Moz, reflecting healthy increases across all regions, following a year of notable declines in 2012, and thus reinstating the post-recession recovery path. Collectors in Europe in particular witnessed an increase, thanks to greater numbers of heavily platinum-loaded Diesel Particulate Filters returned for recycling. Supply of platinum jewellery scrap eased by 5% in 2013 to an estimated 0.41 Moz (12.6 t), with a 9% drop in recycling from Japan accounting for the bulk of the fall. This contraction, despite a rise in the average yen platinum price, suggested that consumers held on to assets in expectation of yet higher prices. Elsewhere, jewellery scrap from China rose only at the margin, while North America recorded a double-digit increase in scrap.
Palladium supply from autocatalyst recycling steamed ahead in 2013, increasing by 12.3% to 1.60 Moz (49.8 t). Most of the rise was due to solid gains in the gasoline-dominant vehicle markets of North America, while China recorded healthy gains last year, despite the fact that the local industry is still in its infancy. Jewellery scrap receipts jumped 12% to a new historical high of 0.29 Moz (9.0 t). Scrap flows benefited from the 13% increase in the average palladium price, which encouraged liquidation from consumers and across the supply chain. China accounted for the bulk of the rise, driven by a sizeable increase in inventory remelt, with these gains offsetting falls in Japan and Europe.
Demand was mixed in 2013. In the platinum market, autocatalyst demand fell by 1.2% to 2.91 Moz (90.6 t) last year. Demand increases from China and to a lesser extent North America proved unable completely to offset the continued negative trend in Europe, the largest market for platinum autocatalyst demand. In all regions, substitution continued with palladium usage making further inroads in the traditional platinum-based light and heavy duty diesel segments.
As a corollary, therefore, palladium autocatalyst demand rose by 3.3% to 6.27 Moz (195.1 t) last year. This was driven particularly by the gasoline-dominant vehicle markets of North America and China, with gains of 5% and 14% respectively. Following an exceptional increase in 2012, demand from Japan fell slightly, whereas the weakness in European auto sector overall meant that palladium demand for autocatalyst in this region did ease, but only very fractionally, by 1% against a platinum contraction of 7% in the European autocat sector..
Meanwhile, platinum jewellery fabrication edged up by less than 1% to reach an estimated 2.29 Moz (71.1 t). Demand growth last year was mainly driven by North American countries as weaker prices and an improving economy encouraged restocking and consumption activities in this region. Chinese demand rose by barely 1% last year, as gold demand soared following the acute drop-off in price, which in turn dampened demand, while European demand retreated over 10% year-on-year. Palladium jewellery remains under a cloud, slumping by 11% to a ten-year low of 0.58 Moz (18.0 t), led by a sizeable fall in China, which saw its share of global demand drop to 44% (from over 70% a decade earlier), as palladium struggled to penetrate the wider market in an environment where gold jewellery dominates retail sales. Demand from North America eased by 4%, while European off take was steady.
Retail investment was also a mixed picture, Platinum retail investment fell 43% to an estimated 0.16 Moz (5.0 t), led by heavy losses in Japan, due to sustained yen weakness throughout the year that saw the local platinum price rise strongly. Elsewhere, demand was also sharply lower with sizeable falls in Europe and North American markets. Palladium retail investment demand picked up by just under 3% in 2013, led higher by North America where expectations of higher prices drove purchases. Latterly, there was a surge in palladium investment in ETFs in March and April 2014, partly reflecting east European tension and aided by the success of two new palladium ETFs in South Africa, both launched in late March.
Thomson Reuters expects the knock-on effects of the South African strike to filter through into the platinum price as the year develops and is looking for a test of $1,700 before the end of the year. Palladium is expected to remain in a deficit in 2014 and to be one of the strongest performers in the metals sector; a test of $930 is foreseeable before year-end.
(c) Thomson Reuters 2014.
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