Platinum Shortage Most in 14 Years as Palladium Deficit Narrows

Platinum demand will exceed supply by the most since 1999 this year as more industrial purchases and investment outweigh slower buying by jewelers and carmakers, Johnson Matthey Plc (JMAT) said. Palladium’s shortfall will narrow as consumption falls faster than supply.

While car manufacturers will buy less platinum for the first time since 2009, more demand from chemical, electrical and glass industries and record investment will widen the shortage by 78 percent to 605,000 ounces, London-based Johnson Matthey said today in a report. Palladium’s deficit will narrow 36 percent to 740,000 ounces as less electrical, jewelry and investment demand outweighs the biggest ever purchases for metal used in catalytic converters and lower Russian stockpile sales.

The metals outperformed gold and silver this year on speculation improving economies will boost demand for materials used in car pollution control devices. Lower supply from South Africa because of mine strikes and cutbacks and falling sales from Russian government palladium inventories helped keep the commodities in a shortage since 2012. The deficits will probably continue next year, Johnson Matthey said.

“We expect little or no serious recovery in South African supplies,” Alison Cowley, a market analyst at Johnson Matthey, said in an interview in London. For platinum, “we’re seeing good demand from most industrial applications. In palladium it’s really an autocatalyst story.”

Platinum for immediate delivery slipped 6.8 percent to $1,435.30 an ounce in London this year. It will trade from $1,360 to $1,580 in the next six months, averaging $1,465, Johnson Matthey said. Palladium rose 6.9 percent to $752.40 an ounce since the start of January and is expected to average $760 in the next six months, ranging from $680 to $815. The company said this market review publication will be its last.

Vehicle Demand

Platinum buying from carmakers will fall 2 percent to 3.13 million ounces this year on weaker demand for diesel cars in Europe and India, said Johnson Matthey, which makes about one in three of the world’s catalytic converters. Palladium usage in cars will rise 4 percent to 6.97 million ounces on a stronger market in China, where gasoline vehicles use more of the metal.

Gross platinum demand will rise 4.9 percent to a record 8.42 million ounces even as jewelry purchases slip 1.4 percent to 2.74 million ounces, the company said. Gross palladium consumption will fall 3.4 percent to 9.63 million ounces as combined usage across chemical, electrical and dental industries falls to the lowest since 2004. Jewelry buying will drop 12 percent to a 10-year low of 390,000 ounces, it estimates.

Jewelry Buying

“Jewelry is lower than last year in platinum but it’s still pretty strong and there’s lots of potential for growth there,” Lucy Bloxham, research manager at Johnson Matthey, also said in an interview in London. “Manufacturers have been moving away from producing palladium jewelry. There’s just limited consumer demand really.”

Platinum investment will rise 68 percent to a record 765,000 ounces this year as palladium investment slumps 84 percent to 75,000 ounces, the researcher expects. Absa Bank Ltd. listed a platinum-backed exchange-traded product in Johannesburg in April and has regulatory approval to list a palladium-backed product there. That may spur additional demand from South African investors and widen the shortage, Johnson Matthey said.

Recycling of both metals will reach a record this year, with scrapping rising 1.7 percent to 2.08 million ounces for platinum and 7.4 percent to 2.46 million ounces for palladium, according to the report.

Mine Output

Platinum mine output that fell to a 12-year low in 2012 will gain 1.6 percent to 5.74 million ounces this year as Zimbabwean production rises, Johnson Matthey said. Palladium supply will slip 1.5 percent to 6.43 million ounces in 2013, the lowest since 2002.

Palladium sales from Russian government inventories, a state secret, will probably total 100,000 ounces, compared with as much as 1 million ounces in 2010, the company estimates. The stockpiles are minimal and won’t significantly determine the market balance any more, it said.

Rhodium’s shortage will widen to 14,000 ounces this year, from 1,000 ounces in 2012, as demand rises 4.3 percent to a six-year high of 1.02 million ounces and supply remains unchanged, Johnson Matthey said. The commodity is mainly used in catalytic converters and also in the chemical and glass industries. It fell 9.3 percent to $980 an ounce this year, according to Johnson Matthey prices on Bloomberg.

Coating Discs

Ruthenium consumption will climb 25 percent to 828,000 ounces on higher electrical use. It’s mostly used for coating computer hard disks. It slid 37 percent to $57 an ounce this year. Demand for iridium, used in spark plugs and for growing metal oxide crystals, will increase 2.1 percent to 198,000 ounces. Prices dropped 57 percent to $450 an ounce this year.

“Rhodium’s been in surplus now for a little while so we’re looking at a metal for which there are some above-ground stocks,” Cowley said. For ruthenium and iridium, “producers can easily meet demand and they’re not able to sell all their metal in every single year. They’re very, very small markets and very illiquid. If the price is going down that tells you that there are more sellers than buyers.”

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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