ETF demand sends platinum to big deficit

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Platinum washers

The platinum market is heading this year for the biggest deficit since 1999 on the back of record demand for exchange-traded products, according to the most closely watched industry forecaster.

But Johnson Matthey, the precious metals refiner, in its twice-yearly review of the sector, predicted flat prices because the market is adequately supplied from stocks of refined platinum.

The company, whose data on platinum group metals (PGM) is considered a benchmark by hedge funds and industrial users of commodities, expects platinum prices to trade in a range of $1,360-$1,580 a troy ounce, averaging $1,465 over the next six months. On Tuesday, the platinum price was trading around $1,420.

“Liquidity in the market remains good and while it remains good price movements will be modest,” said Alison Cowley, principal market analyst at JM.

In a recent report Standard Bank estimated inventories of platinum held at factories or in exchange traded funds were equal to about 1,000 days of consumption, or just under 20m ounces. However, other forecasters have lower estimates. Thomson Reuters GFMS, for example, expects above the ground stocks of platinum to total 4.2m ounces by the end of the year – or more than 220 days of consumption.

The price of platinum, which is primarily used in catalytic converters to clean car exhausts and also in jewellery, has fallen 24 per cent since the start of the year.

JM predicted gross demand for platinum would hit a record 8.42m ounces in 2013, up 4.8 per cent on a year earlier lifted by a strong recovery in sales to industrial users and buying by South African investors, who have flocked to a new exchange traded fund. Investment demand is predicted to rise 68 per cent to a record 750,000 ounces.

And with supplies from South Africa recovering only modestly from last year’s steep decline, this will be enough to push the market to a deficit of 605,000 ounces, the largest since 1999, according to the review. Global platinum supplies are expected to total 5.74m ounces in 2013, up 2 per cent year on year with supply from recycling reaching just over 2m ounces.

In 2014, JM expects a third consecutive year of deficits for the platinum market. Ms Cowley said sales to carmakers in Europe would be boosted by new diesel emissions standards, while sales of platinum to the jewellery trade, particularly in China, could reach new heights.

“The conditions are in place for further growth in the Chinese market,” she said.

The report also predicted another year of deficit for the palladium market. Palladium, which is also used in catalytic converters, is expected to trade between $680 and $815 a troy ounce, averaging $760, over the next six months. The current price is around $750.

However, a proposed palladium ETF in South Africa could generate additional demand for the metal.

Absa, the South African bank, recently received regulatory approval for a palladium ETF, which it hopes to launch by the end of the year. Its platinum ETF, launched in April, has been a huge success accumulating 659,000 ounces of metal by the end of September.

“It remains to be seen whether a palladium product will enjoy the same degree of interest from South African investors,” said Ms Cowley, adding the interim review would be JM’s last issue.

JM has been trying to find a sponsor for the review, which was first published in 1985, after Anglo American Platinum withdrew its funding earlier this year.

“In future, it is our intention to make our market data available exclusively to Johnson Matthey’s customers and contributors to our research efforts,” said Jeremy Coombes, the company’s head of marketing and publications.