Saturday, June 30, 2012

Platinum demand to substantially outstrip supply in 2012


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"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.


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.

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