Platinum seen in record 1.33 mln oz deficit in ’14 – Johnson Matthey

Otmane El Rhazi from The Bullion Desk.

Johnson Matthey expects the platinum market to record a third consecutive annual deficit of 1.33 million ounces in 2014, it said, after industrial action in South Africa earlier this year hit primary supply heavily.

The five-month strike that ended in June will lower primary supply by 1.3 million ounces to bring overall supply in 2014 to 5.1 million ounces, the company said in a webinar on Monday.

Still, destocking of 450,000 ounces by South African producers helped to alleviate the impact of the strikes and limit supply losses from South Africa to just 18 percent, it said.

JM expects gross demand for jewellery to contract by just more than one percent in 2014 – moderate demand growth in Japan has offset lower demand in the US and Europe.

Spot platinum is currently at $1,222/1,227 per ounce, down from a peak of $1,520 in July and from $1,371 at the start of the year.

In autocatalyst use, predominantly in Europe, the introduction of Euro VI regulations governing exhaust emissions in Europe has substantially increased average loadings, JM said.

Primary supply from South Africa should recover strongly, it said, while supply from elsewhere will remain broadly flat, with gross demand anticipated to rise on automotive demand and improvements in industrial purchasing.

Palladium should also record a heavy deficit this year – JM pegs it at 3.948 million ounces – with the end of Russian government stock sales and industrial action in South Africa contributing to lower primary supply.

After years of selling, Russian government stock are “very close to zero, if not zero”, according to Johnson Matthey, which will contribute to the loss in total supply for the year.

It expects overall supply to be 6.204 million ounces against higher gross demand from the strong investment and autocatalysts sectors.

Still, palladium supply was comparatively less affected by the South African strikes because most facilities are concentrated in the northern and eastern limbs of the Bushveld Complex, which were not directly affected. Furthermore, sales from inventories will offset some of the losses from the strikes.

Demand for use in autocatalysts will continue to underpin the market – it is seen exceeding seven million ounces for the first time.

This has been strong year for investment demand – investors in North America and Europe have shown strong interest during the period of weaker prices, particularly in ETFs, although investment demand is unlikely to be as strong next year, JM said.

Palladium was last at $791/796 per ounce, down from a peak of $911.50 in September and up slightly from $716 at the start of the year.

Primary supply from South Africa should recover strongly, JM said, although total world supplies will remain well below 1995-2013 levels.

The recovery of palladium supply through autocatalyst recycling is expected to increase but the demand from the auto sector will increase mainly in China and North America.

“Unless there is significant liquidation in investment holdings, the market is likely to remain in substantial deficit for a fourth consecutive year,” JM said.

(Editing by Mark Shaw)

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