Platinum Posts Biggest Shortage Since 2002 as Output Contracts

The platinum market swung into the biggest shortage since 2002 last year as supply fell to a 12-year low on strikes and stoppages in top producer South Africa, according to Johnson Matthey Plc. The palladium deficit was the biggest since 2000.

The platinum shortage was 375,000 ounces last year and a “slight deficit” is possible this year if investment continues to grow, London-based Johnson Matthey said today in a report. Platinum supply fell 13 percent to 5.64 million ounces, as total demand declined 0.6 percent, it said. Lower palladium sales from Russian state stockpiles and constrained output in Russia and South Africa is “a recipe for an under-supplied market” and higher prices, Johnson Matthey said.

“The supply that we see at the moment is being balanced by autocatalyst, jewelry and industrial demand,” Mark Bedford, managing director for precious metals at Johnson Matthey, said in an interview before the report. “Investment really becomes a balancing figure. If investment demand continues to be positive in 2013, I wouldn’t be surprised if we didn’t see a similar sort of deficit as the one that we saw this year.”

Both metals are mostly used in vehicle pollution-control devices and jewelry, with palladium favored mainly for gasoline-burning engines in the U.S. and Asia and platinum for diesels in Europe. Platinum holdings in exchange-traded funds expanded 11 percent this year after growing 16 percent in 2012, data compiled by Bloomberg show. Palladium ETF holdings are up 13 percent in 2013 after increasing 11 percent last year, the data show.

Strikes, Closings

Platinum shipments from top producer South Africa dropped 16 percent to 4.1 million ounces as at least 750,000 ounces of supply was lost to strikes and mine closings, according to Johnson Matthey. Recycling slid 1.5 percent to 2.03 million ounces as lower prices encouraged stocks retention.

Anglo American Platinum Ltd., the biggest producer of the metal, said May 10 it plans to cut platinum output by 250,000 ounces this year as part of the plan to return to profitability amid surging costs and slower demand.

Autocatalyst usage gained 1.7 percent to 3.24 million ounces on demand in Asia and North America and increased usage in the non-road diesel engines, the researcher and trader said. Jewelry consumption rose 12 percent to 2.78 million ounces and investment demand slid 1.1 percent.

Autocatalyst demand is “unlikely” to grow this year and jewelry demand will decline “slightly,” according to the report.

Automaker Demand

Platinum for immediate delivery, down 3.5 percent this year to $1,485.60 an ounce, will average $1,570 in the next six months, it said. Palladium, little changed at $703.64 an ounce, will average $740 in the next six months, Johnson Matthey said.

Palladium swung into deficit last year from a surplus of 1.19 million ounces in 2011 on record demand for autocatalysts and investor demand amid lower supplies, Johnson Matthey said. Gross demand for palladium rose 16 percent as supply fell by 11 percent to 6.55 million ounces, the lowest since 2002.

Demand from automakers climbed 7.5 percent to a record 6.62 million ounces on recovery in Japan and growth in China. Industrial demand slipped 4 percent to 2.37 million ounces and jewelry demand slid 12 percent to 445,000 ounces, according to the report.

Palladium sales from Russian government inventories, a state secret, will come to about 100,000 ounces in 2013 from 250,000 ounces in 2012, Bedford said. This year will be the last year of “substantial shipments” from Russian stockpiles, he added. Supply from South Africa declined 9 percent to 2.33 million ounces last year.

Rhodium Surplus

Rhodium’s surplus narrowed to 15,000 ounces last year from 134,000 ounces in 2011 year on higher demand for autocatalysts in North America and Japan, Johnson Matthey said. The commodity is mainly used in autocatalysts and also in the chemical and glass industries. It’s up 6.5 percent this year at $1,150 an ounce, according to Johnson Matthey prices on Bloomberg.

Ruthenium consumption slipped 32 percent to 679,000 ounces in 2012 on lower demand from the electronics industry. It’s mostly used for coating computer hard disks. Demand for iridium, used in spark plugs and for growing metal oxide crystals, dropped 46 percent 178,000 ounces, the researcher said.