Johnson Matthey: South African Output Disruptions Pushes Platinum Into 2012 Supply Deficit
Johnson Matthey: S. African Output Disruptions Push Platinum Into 2012 Supply Deficit
Tuesday November 13, 2012 3:00AM
(Kitco News) - The platinum market will swing into a supply deficit of 400,000 ounces in 2012 as South African supplies fall to the lowest level since 2001 and volumes from auto-catalyst recycling decline, Johnson Matthey said Tuesday in its Platinum 2012 Interim Review.
This is a turnabout from a surplus from 2011 that the firm put at 430,000 ounces.
“So you have effectively a swing of 800,000 ounces roughly,” said Tim Murray, general manager for precious metals marketing with Johnson Matthey.
“In 2013, in terms of platinum, there is a possibility the market could once again tip into deficit. It really (depends upon) what happens in South Africa.”
Johnson Matthey said it is looking for platinum to average $1,625 an ounce over the next six months, with a range of $1,400 and $1,800. The most-active January contract on the New York Mercantile Exchange settled Monday at $1,566.50.
The projected decline in South African output for 2012 is largely due to a series of safety stoppages and strikes. While a number of those strikes have been resolved, one continues against Anglo American Platinum, the world’s largest producer.
“If that continues into the end of the year and spills into next year, along with what we anticipate to be some restructuring in the South African mining industry, we don’t think supply is going to grow,” Murray added.
South African Output Hits 11-Year Low In 2012
Disruptions to mining in South Africa, which Johnson Matthey described as “severe,” will result in a 10% drop in worldwide platinum-mine supplies to 5.84 million ounces, Johnson Matthey said. Platinum supplies from South Africa are forecast to fall by 12% year-on-year to 4.25 million ounces, an 11-year low. The country is critical to the world platinum market and even with the production losses will provide nearly three-quarters of the world’s mine output this year.
For the first three quarters of the year, South African output losses from strikes and safety stoppages are estimated to be at least 300,000 ounces, Johnson Matthey said. Further, the closure of marginal operations by some junior producers and below-plan performance at other mines will also account for some reduction in supply this year. Output in other parts of the world will be roughly flat, the company said.
“The focus for the last three or four months has really been what’s going on in South Africa,” Murray said. “This has been taken to a new level in terms of labor actions….There’s been a lot of metal lost this year starting with Impala at the beginning of the year and carrying through to Lonmin and now to Anglo. If it continues, it’s going to put a lot of stress on the supply side.”
Platinum recycling is forecast to fall by 11% to 1.83 million ounces in 2012. Recovery from spent end-of-life vehicle catalysts is expected to soften as collectors have been holding on to spent converters in anticipation of improved prices. Platinum jewelry recycling will also weaken due to lower returns of old consumer pieces in Japan, Johnson Matthey said.
Johnson Matthey said gross demand remains generally firm, estimated at 8.07 million ounces. The firm reported dips in industrial demand but stronger jewelry and investment buying.
Gross platinum demand in autocatalysts is predicted to soften by a modest 1% to 3.07 million ounces. Falling vehicle production in Europe, together with a slight decline in the market share of diesel cars in the region, will be largely offset by higher purchasing of platinum by Japanese manufacturers as output improves following last year’s natural disasters. Greater demand is also expected from the light-duty diesel sector in India, where sales have grown strongly in 2012, as well as more platinum used in heavy-duty diesel emissions after-treatment worldwide.
Other industrial demand for platinum is forecast to subside by 13% to 1.79 million ounces in 2012. In the glass manufacturing sector, new purchasing will be offset by the use of platinum scrapped from old facilities and the drawing down of inventory bought last year. Electrical demand is also expected to soften, but purchasing of platinum for non-road emissions control applications will rise.
"Chinese jewelry demand was exceptionally strong,” Murray said.
Demand for platinum in the jewelry sector is expected to reach a three-year high of 2.73 million ounces. China remains the largest consumer, with its demand forecast to reach 1.92 million ounces, driven by lower average platinum prices and an increase in the manufacturing of platinum jewelry to stock new retail stores being opened by Hong Kong brands in mainland China. Consumer demand for platinum jewelry in India has continued to grow, Johnson Matthey added.
"Investment is still relatively healthy,” Murray said. “Net investment is going to be up again in the ETF sector.”
Physical investment demand for platinum this year is seen at 490,000 ounces. Much of this is metal held by exchange-traded funds, which trade like a stock but track the price of the commodity. Investment in ETFs largely followed the platinum price during 2012, with net investment generally occurring during periods of rising priced, Johnson Matthey said. Net acquisitions by investors in the Japanese large bar market and in the coin sector will also supplement demand.
Looking ahead to 2013, Johnson Matthey said it looks for modest growth in platinum demand, with steady auto-catalyst demand and a recovery in industrial purchasing. However, the firm said, it is difficult to expect an increase in supplies from South Africa of any great magnitude from the 4.25 million ounces forecast this year, as a result of ongoing disruption and possible restructuring of the industry. Recycling could be a key factor in the platinum market balance in 2013, especially if prices see a material and sustained improvement, driving higher throughput of catalyst substrates to refineries, the firm said.