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White-hot platinum set to lose its lustre

Created:
22 May 2008
Written by:
Daniel O'Sullivan

Johnson Matthey's well-respected annual platinum group metal survey shows that demand for the white metal outstripped supply by 480,000oz in 2007 (see the summary on JM's website) Mining strikes and smelter issues in key producer South Africa were a major factor in global supply contracting 4.1 per cent to 6.55m oz, while growth in autocatalyst demand was the main driver behind 8.6 per cent demand growth to 7.03m oz. Add in the ongoing power supply problems that emerged in South Africa at the start of this year, and Matthey forecasts a platinum price trading between $1775 and $2500 per oz over the next six months, compared to current prices of around $2200.

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As platinum only breached the $1500 per oz mark for the first time ever at the start of this year, Matthey's judgment that current elevated price levels can be maintained through 2008 will have cheered platinum producers, who descended on London en masse this week for Platinum Week. But, the Matthey data on autocatalyst platinum use should give them pause for thought. Autocatalysts, which remove pollutants from vehicle exhausts, account for by far the largest share of platinum use, with total global consumption of 4.23m oz in 2007 being almost three times that of the next biggest sector, jewellery. Within this, European autocatalyst production - primarily for diesel engines - took the lion's share, 2.08m oz in 2007, compared with North America's 0.93m oz.

Yet, according to Matthey, 2007 growth in European autocatalyst demand - the mainstay of global platinum demand - was just 20,000oz, or 1 per cent, with headline global growth being driven by China. As UBS metals strategist John Reade says, this is at odds with expectations that right now should be the 'sweet spot' for European autocatalyst platinum consumption - it should be soaring due to increasing European car sales, increasing diesel penetration in this market, and incoming European environmental regulations. "I don't know what's missing from our models," says Mr Reade, "but I suspect that it's thrifting". Thrifting refers to the ongoing efforts of autocatalyst producers to reduce the amount of expensive metals required in their products, and by UBS calculations platinum 'loading' - the amount used per 1000 vehicles - did, indeed, drop in 2007. If autocatalyst producers are getting thriftier, analysts will have to revisit some of the basic assumptions underlying their long-term forecasts for European industrial demand for the metal, and therefore their forward prices.

PLAYING THE PLATINUM MARKET...

There are lots of UK-quoted platinum miners and explorers, including Lonmin, Aquarius Platinum, Anglo American and a host of smaller companies.

There are also other ways to play platinum prices, including spread bets and Exchange Traded Funds.

IC Advantage susbcribers can find out more about our views on these products in the separate article, Platinum punts

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