LAWRIE WILLIAMS: Mixed forecasts on platinum
This week is Platinum Week in London and the week saw the publication of two reports/forecasts on platinum from totally different entities and while the one is mostly positive on 2018 prospects for the metal, the other somewhat less so. ‘You pays your money and you takes your choice’ as the saying goes, although in this case the first of these reports, is from the World Platinum Investment Council, which is largely funded by the South African platinum mining sector so is free of charge and can be downloaded in full from the internet – click here to download. The second is from London precious metals consultancy, Metals Focus and costs £180. Both reports are extremely comprehensive in their analyses, although the Metals Focus one additionally covers palladium, the prospects for which it views rather more positively – at least in the short to medium term.
Where the two reports seem to differ most on platinum is on Q1 supply – particularly from the South African mines and one would think the WPIC figures might be the more accurate given its relationship with the South African miners which account for around 70% of global platinum production. However the WPIC uses an independent research organisation (SFA Oxford) to prepare its figures. SFA is a platinum group metals research specialist and employs nine platinum group metal analysts to produce its figures.
According to the WPIC report, the Council predicts that platinum supply will tighten in 2018 compared to 2017, with South African mine supply falling in Q1 to its lowest level since 2016. Global demand for platinum is forecast to be marginally up for the year, despite a fall in total global automotive demand, with growth in commercial vehicles insufficient to offset lower demand from passenger cars. These fundamental shifts, the WPIC says, will contribute to a reduction in the level of overall surplus for the year, down to 180,000 ounces from a revised surplus figure of 315,000 ounces in 2017. Q1 2018 was seen as in deficit by 125,000 ounces it says.
Metals Focus largely concurs although it sets the global production surplus at a rather lower 40,000 ounces which it describes as effectively a market in in balance. It sees mine production coming in 0.9% lower than in 2017 at 6.1 million ounces which is effectively counterbalancing the fall in demand arising from an ongoing decline in light diesel engine market share in Europe (the prime market for platinum-based exhaust emission control demand). The consultancy reckons that this fall in demand is proving to be more rapid than had initially been expected.
As to speculation concerning a return to platinum-based catalysts in petrol (gasoline) car engines now that platinum is generally at a lower price level than palladium, Metals Focus states it sees no signs that this may be occurring. However Paul Wilson, CEO of the WPIC disagrees to an extent in saying that concerns about palladium supply are already leading to catalyst manufacturers starting to switch. He concludes his foreword to the WPIC report in noting “The palladium market is tight, lease rates are high and global trade tensions add to concerns on supply. Substitution of palladium by platinum in gasoline cars appears more likely and will not happen slowly, due to price, as suggested by fabricators, but is already underway (and unannounced) to reduce supply risk.”
On the platinum jewellery front the reports again differ in their findings. Metals Focus saw jewellery demand as flat with lower Chinese demand offsetting gains elsewhere. The WPIC analysts on the other hand saw global growth in the jewellery market with 3% growth in Q1 2018.
The overview from Metals Focus is that a material and ongoing stock depletion is necessary for the platinum price to move materially higher. However it still is looking for higher platinum prices of around 3% over the year to a 2018 average of $980. It reaches this conclusion due to the perceived correlation with gold and its constructive outlook for the latter, on the back of renewed weakness in the US dollar and further weakness in equities.
The WPIC on the other hand makes no actual price predictions. It does see supply falling about 1% to 7.975 million ounces with a 3% fall in mine supply being partly countered by a predicted increase in recycled metal.
Global platinum demand is projected by the WPIC to be marginally higher in 2018 than last year at 7.795 million ounces with gains in the industrial industrial and jewellery sectors largely offset offset declines in automotive and investment offtake.
Neither report seems to be particularly optimistic or pessimistic on the platinum supply/demand balance and the overall conclusion has to be that the platinum market in 2018 will remain subdued. Much will depend, though, on which of the analyses is correct on reverse substitution of platinum for palladium in the auto exhaust catalyst sector. It should be remembered that when palladium (with rhodium) became the predominant catalyst of choice for petrol driven internal Combustion Engines its price was hugely lower than that of platinum which had previously been the catalytic metal of choice. There are arguments about the efficacy of each metal as a catalyst, but there is little doubt that the price differential has very much moved in platinum’s favour. But whether this is sufficient to cause manufacturers to switch back remains as yet uncertain. There are ‘Catch 22’ price implications if the switch does occur – platinum would move higher and palladium fall – perhaps redressing the price balance in palladium’s favour again! The answer is we do not know and the market needs to be watched closely to see the more likely beneficiary.