The platinum week 2013

Two weeks ago, we gave a brief outlook at the platinum week in London 2013, which took place last week. One highlight was the release of the Platinum Report 2013 by Johnson Matthey. The assessment of the platinum market differs in some aspects considerably from the report of GFMS, which had been released already two weeks earlier.

While GFMS estimated that the platinum market was in a supply deficit of around 80,000 ounces in 2012, Johnson Matthey estimates that the deficit was far bigger at 375,000 ounces due to supply shortfall from South Africa. The primary supply of platinum fell to 5.64 million ounces, which is a decline of 13% compared to the previous year. In South Africa, at least 750,000 ounces of output were lost due to labor disputes and closing of some marginal mines. Supply from recycling platinum declined to only 2.03 million ounces, far less than projected in the 2012 interim report, where a fall to 1.83 million ounces was estimated.  

The total demand for platinum decreased in 2012 by 0.6% to 8.05 million ounces. The gross demand from the automotive sector rose to 3.24 million ounces, an increase of 1.7%. Thus, the weakness in the European car market was more than compensated by rising demand in other regions. The gross jewellery demand was 2.78 million ounces, an increase of 12%. The price discount to gold was certainly one supportive factor beside the expansion of the jewellery distribution network in China.  However, industrial demand fell by 21% to 1.57 million ounces.

However, more important than the diverging assessment of the platinum market in 2012, is the outlook for 2013. Two weeks ago, we wrote that we would be surprised if Johnson Matthey would predict a strong increase of supply for this year. And indeed, JM predicts only a slight increase of primary platinum supply “with broadly the same level of sales from South Africa as in 2012 and slightly higher shipments from other regions”.

On the demand side, Johnson Matthey writes that “gross demand for autocatalysts is unlikely to grow and jewellery demand may well decline slightly. Demand from industry, notably the glass sector, is expected to rebound from the low 2012 level”. Based on the estimate that supply from autocatalyst scrap recycling would grow this year, JM concludes that demand from automotive and industrial sector as well as jewellery should be matched by supply. However, as pointed out, we have some doubts whether supply from scrap recycling will increase sufficiently. If new car registrations remain lackluster in Europe, this implies that old vehicles will be driven longer and thus, less catalytic convertors will be available for recycling.

However, so far demand for investment has not been included in the calculation. Taking this into account and expecting the same pattern as last year, JM concludes that the platinum market is likely in a slight supply deficit this year. This is quite different from the GFMS estimate of a supply surplus. As we regard the estimates from Johnson Matthey as more plausible, we expect that the supply/demand balance remains in favor of platinum.

However, even a further year of supply deficit might not prevent that the price of platinum might be lower on average compared to last year. Our vector autoregressive (VAR) model for precious metals shows that the price of platinum is strongly influenced by the development of gold. And it is the weakness of gold, which also dragged platinum down last week and could weigh further on platinum. Nevertheless, we still expect that platinum will perform better than gold this year.