Platinum Demand to Substantially Outstrip Supply in 2012

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"Contrary to investor perceptions, fabrication demand for platinum, palladium and rhodium is expected to grow at a stronger pace in 2012, says commodities consultant CPM Group."

"The platinum market is expected to be in a substantial deficit this year and palladium could fall into a deficit, due to lower South African and Russian output," CPM forecast Tuesday in its CPM Group Platinum Group Metals Yearbook 2012.

"Rhodium's surplus is expected to decline in 2012, similar to platinum and palladium, mostly due to a decline in mine production in South Africa, the largest producer of PGMs," said the New York City-based commodities consultants.

In the yearbook, CPM observed platinum and palladium supply and demand growth slowed in 2011; demand growth due to weaker economic conditions; and supply growth slowed due to production disruptions at South African PGM mines.

"In 2012 supply is forecast to fall as virtually no new PGM production capacity is added to annual supply and labor strikes earlier this year halted production for extended periods," CPM predicted.

Platinum

Fabrication demand for platinum totaled 7,361,590 ounces in 2011, a 2.2% increase.

Platinum fabrication demand is projected to rise 3.5% this year to around 7,617,992 ounces, the strongest growth since 2006, says the yearbook. "This is because a large component of fabrication is highly price sensitive."

Jewelry demand, which comprises 25% of total platinum demand, is expected to benefit from lower platinum prices this year, increasing 2.4%.

Auto demand is also expected to rise at a strong pace, mostly due to a strong recovery in demand from Japan. Monthly double-digit sales are expected to boost platinum auto demand by 20% in 2012, according to PGM.

Jewelry demand for platinum rose to 1.9 million ounces in 2011 for a 2% increase. China is now the biggest consumer of platinum jewelry with roughly 75% of jewelry demand coming from the country last year.

"Jewelry demand is expected to benefit from weaker prices in 2012," CPM said. "Demand from this source is projected to rise 2.4% this year to an estimated 2 million ounces."

Platinum investment demand was strong in 2011, but not as strong as in previous years, CPM noted. Investors added 88,643 ounces of platinum to their exchange-traded product holdings in 2011, the slowest annual growth since 2007. Holdings were 1,325,474 ounces at the end of 2011, up 3.4%.

Demand for platinum coins appeared relatively strong last year in 2011, said CPM. Total platinum coinage is estimated to be 36,847 ounces in 2011. "Coinage could soften in 2012," said the yearbook.

Annual refined platinum supply rose for the second consecutive year by 3.5% to 7.4 million ounces in 2011. The majority of the increase came from increased mining production, which accounted for 86.6% of total supply in 2011.

Newly refined platinum mine output rose to 6.4 million ounces, up 3.7% year-on-year. The four largest platinum- producing mining companies accounted for 75.4% of platinum mine output last year, all posting declines in platinum production.

Secondary platinum supply also increased last year to 987,844 ounces, a 2.5% increase. The increase in secondary supply came mainly from an increase in scrapped cars.

CPM expects total platinum supply to fall 1.6% this year to 7.3 million ounces. "Lower mine production in South Africa and Russia is expected to weigh heavily on supply. Secondary supply also is expected to fall due to lower scrap sales amid lower prices."

"The more relevant concern going forward is the lack of new projects coming onstream, which are needed to offset declines in output from mines where reserves are being depleted," said CPM, which estimates that annual PGM production capacity will increase from 14 million ounces in 2011 to 15.5 million ounces by 2016.

"From 2012 through 2015, only 680,000 ounces of PGM capacity will be added to annual production from near-term development projects."

Platinum prices average a record $1,722.39 last year, but still fell below gold prices for the first time since 2008.

Palladium

Palladium prices average $733.85 an ounce during 2011, 38.7% higher than in 2010. "A tightening market balance during 2012 is expected to garner investor interest in the metal, which should help to boost prices for the metal," said CPM.

Palladium mine supply rose 5% to 6.9 million ounces in 2011. Total mine supply of 6.8 million ounces is expected in 2012, down 1.7%.

Total palladium supply is projected to decline to 8.55 million ounces in 2012, down from 8.61 million ounces in 2011.

Secondary palladium secondary recovery is expected to rise 3.5% to 1.8 million ounces this year.

Fabrication demand also rose at the strongest pace of PGM metals, achieving a record high of 8.04 million ounces last year, a 3.5% increase. "Palladium fabrication demand has benefited from the metal's increased use in diesel auto catalysts over the past few years. . .and higher palladium demand from the electronics industry," said the yearbook.

Palladium fabrication demand is forecast to reach 8.49 million ounces this year. "Strong demand for the metal from the autocatalyst sector is expected to be the primary drive of demand growth for palladium in 2012," CPM advises.

"An increase in fabrication demand during 2012, coupled with a decline in total supply during the year, is expected to tighten the palladium market," CPM predicted. "The surplus in the market is forecast to shrink to 51,990 ounces in 2012."

"Meanwhile investors are seen re-entering this market, on the prospect of this tighter supply and demand balance, which is expected to have a potentially positive impact on the price of the metal."

However, investment demand for palladium decline last year as investors because increasingly concerned about the health of the global economy. "A combination of a tightening market balance and increased investor demand for palladium are expected to boost palladium prices as 2012 progresses," CPM forecast.

Meanwhile, palladium prices continue to outperform platinum prices in 2011 as the annual average palladium price rose 39.2%.

Rhodium

This year's yearbook discusses two key trends in the rhodium market that could continue to affect prices more positively in the future. The introduction of the first exchange-traded product physically back by rhodium "now will provide the market with a transparent indication of investment demand trends for rhodium," said the report.

"Second a key trend has emerged in South African rhodium mine production growth that may suggest slower growth in the future relative to the past couple of decade," said CPM. "Rhodium mine supply in the country has been rising at a more rapid rate than platinum and palladium, mostly due to significant improvements in processing and refining techniques and recovery rates."

Total rhodium supply rose to 991,620 ounces in 2011, up 2.6%. "This was the highest annual supply on record and marked the fourth consecutive annual increase," said CPM. The increase in mine production was driven by an increase in Canadian byproduct rhodium production.

Rhodium fabrication demand reached 894,496 ounces last year, up 1.3%.

Dorothy Kosich
Mineweb

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