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Economy, price depress platinum demand in '08
Industry interest in palladium climbs 20 percent
May 18, 2009
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New York--Platinum experienced a series of downward trends in 2008, from declines in global supply and net demand to a nosedive in price, according to the just released "Platinum 2009" report by metals consultancy Johnson Matthey.
According to the report, global supplies of platinum declined by 9.5 percent to 5.97 million ounces in 2008, with supplies from Russia and South Africa impacted by a flurry of challenges, from bad weather and geological issues to safety closures, smelter problems and a shortage of skilled staff. Sales of platinum from South Africa decreased to 4.53 million ounces, and Russian platinum supplies fell to 820,000 ounces.
Despite the economic slowdown, demand, which dropped 5 percent to 6.35 million ounces in 2008, still exceeded supply, and the platinum market was in deficit of 375,000 ounces for the year.
Looking specifically at jewelry usage, jewelry demand for platinum declined 6.2 percent to 1.37 million ounces in 2008, with manufacturing volumes and retail sales depressed by the high metal prices in the first half of 2008. As the platinum price fell later in the year, retailers and manufacturers in China began to rebuild their stocks of platinum jewelry and reduce prices, stimulating higher consumer sales. Yet, demand remained weak in Europe and North America, where low consumer confidence limited sales of precious jewelry in general.
One area defying the downward trends was in net physical investment demand, which Johnson Matthey says grew strongly, from 170,000 ounces in 2007 to 425,000 ounces in 2008. Purchasing of metal through the Exchange Traded Funds was volatile, the review says, with heavy buying in early 2008 and heavy selling later in the year.
Turning to palladium, the market was in surplus by 460,000 ounces in 2008, with net palladium demand climbing by 15,000 ounces to 6.85 million ounces. Net palladium demand from the jewelry industry climbed 19.6 percent to 855,000 ounces in 2008, and physical investment demand for palladium climbed by more than 50 percent to 400,000 ounces.
Following traditional supply and demand trends, as palladium demand increased, palladium supplies fell, declining to 7.31 million ounces in 2008 due to lower production in Russia, South Africa and North America.
For both palladium and platinum alike, discussion of pricing trends is characterized by extreme volatility, with Johnson Matthey saying that the volatility in the platinum price during 2008 was without precedent. The first fix of the year was at $1,530, which skyrocketed to a record $2,276 on March 4, driven by disruption to platinum supplies in South Africa combined with a weak U.S. dollar. Escalating concerns over the global economic situation prompted many funds to liquidate large positions in commodity investments, the report says, leading to a platinum price crash. The price fell to $756 in October before recovering to end the year at $899.
Though palladium's prices are significantly lower than that of platinum, the metal's price trajectory followed that of platinum, spiking in early 2008 at $588 and ending significantly lower, at $183.50.
Looking ahead to 2009, Johnson Matthey says the weak state of the global economy makes for the greatest uncertainty for the state of the platinum group metals. Demand from the automotive industry is expected to fall as global vehicle production continues to struggle, and other industrial sectors are expected to take less metal as well. The consultancy expects to see higher global platinum group metal production in 2009, yet growth in output will remain limited.
On the other hand, net demand for platinum from the jewelry industry is expected to rise strongly in 2009. Johnson Matthey references industry participants in China who increased their previously low stocks of metal and finished jewelry. As consumer purchasing strengthened in the first quarter of 2008 and remained strong in the first quarter of 2009, the affordability of platinum jewelry in China improved.
Overall, Johnson Matthey expects that supply and demand will be more closely matched in 2009 than in 2008. Due to uncertainty as to the trajectory of the global economy, however, Johnson Matthey says the prognosis for the balance of 2009 is unclear.
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