Platinum Surplus Seen Jumping Eightfold

Source: Bloomberg, Jae Hur and Ichiro Suzuki (5/26/11)

"Japan's worst earthquake slashed car production, reducing the country's demand to the lowest level in 28 years."

Bloomberg, Jae Hur and Ichiro Suzuki

The global platinum surplus may jump eightfold after Japan's worst earthquake slashed car production, reducing the country's demand to the lowest level in 28 years, said the nation's top refiner.

Supply will probably outpace demand by as much as five metric tons this year, compared with a surplus of 600 kilograms last year, Shinya Kitaoka, trading section chief at Tanaka Kikinzoku Kogyo K.K., said in an interview. The world palladium shortage may be cut by half, he said.

The surge in supply may curb an advance in platinum prices that climbed 18% in the past year. Palladium soared 71%. Both metals are used for pollution-control devices in cars and automakers such as Toyota Motor Corp. (7203) and Honda Motor Co. reduced production after the temblor and tsunami devastated northern Japan on March 11. The country represents 15% of world platinum demand, according to Johnson Matthey Plc. (JMAT)

"The drop in auto production volumes is certainly not bullish for the two metals," said Michael Widmer, head of metals research at Bank of America Merrill Lynch in London and the most accurate platinum forecaster tracked by Bloomberg over eight quarters. He predicts an average price of $1,838 an ounce this year, down from an estimate of $2,000 before the quake.

World platinum use for auto-catalysts accounts for 40% of demand, according to Johnson Matthey. In Japan, platinum use in the sector accounts for 47% of demand.

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