Platinum Surplus Seen Jumping Eightfold After Japan Quake Cuts Car Output

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 percent in the past year. Palladium soared 71 percent. 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 percent 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 percent of demand, according to Johnson Matthey. In Japan, platinum use in the sector accounts for 47 percent of demand.

ETFs

Investors expanded their platinum holdings in funds faster than for any other precious metal this year, in a bet that mining companies digging as deep as 1.4 miles underground will fail to meet record consumption. Assets in exchange-traded products rose 12 percent to 42.2 tons, valued at $2.4 billion, according to data compiled by Bloomberg on May 25.

Platinum for immediate delivery increased 0.3 percent to $1,785.65 an ounce today and palladium was down 0.1 percent at $749.08 an ounce.

Anglo American Platinum Ltd., the world’s biggest producer, said May 19 platinum should average $2,000 this year after the South African rand appreciated, potentially creating a shortage as higher mining costs discourage producers. About 76 percent of platinum comes from South Africa, according to Johnson Matthey.

‘Zero Demand’

“There’s been almost zero demand” for platinum from domestic automakers since the earthquake, Kitaoka said on May 24. The disaster may reduce demand from the domestic car industry by at least 20 percent this year, he said.

Toyota, Honda Motor and Nissan Motor Co. halted output after the earthquake and tsunami damaged factories and knocked out power plants, causing a shortage of parts and electricity. The closures cut demand for platinum-group metals by about 90,000 ounces so far, equal to about 0.5 percent of combined annual usage, Barclays said April 15. Consumption will be deferred rather than lost, it said. Tanaka Kikinzoku’s estimate of the surplus this year is equivalent to about 161,000 ounces.

Platinum demand in Japan may slump to around 30 tons this year from 35.9 tons last year estimated by Johnson Matthey, Kitaoka said. That would be the lowest since 1983, according to Johnson Matthey data. World demand would be close to supply this year after the surplus narrowed to 20,000 ounces in 2010 from 635,000 ounces in 2009, the London-based refiner said May 16.

Auto Sales

Auto sales in Japan dropped in April for the eighth straight month after the quake cut output and a government subsidy program ended. Sales of cars, trucks and buses, excluding minicars, fell 51 percent from a year earlier to a record-low 108,824 vehicles, the Japan Automobile Dealers Association said May 2. In March, sales dropped 37 percent.

“Our base case is still that auto production will normalize later this year,” said Widmer. “It is also worth noting that with declines in Japanese car production, there is scope for non-Japanese brands to expand sales.” Toyota, Japan’s biggest carmaker, said on May 11 global output will begin recovering in June, earlier than the company’s forecast.

Palladium demand may outstrip supply by seven tons to eight tons in 2011, less than the shortage of 15.2 tons last year, Kitaoka said. In Japan, demand may drop 10 percent from last year’s 45.9 tons estimated by Johnson Matthey, he said.

The shortage will lessen because of declining Japanese demand for car pollution-control devices after the disaster, slowing demand for jewelry in China and from exchange-traded funds amid rising scrap supply and continued sales by Russia, the biggest producer, Kitaoka said.

Catalytic-converter use in automobiles accounts for 57 percent of global palladium demand, according to Johnson Matthey. In Japan, the sector accounts for 55 percent of demand.

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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