JOHANNESBURG (miningweekly.com) – The drop in demand for platinum and palladium from the autocatalyst sector would lead to “sizable” reductions in overall demand, despite rising demand from other sectors, precious metals consultancy GFMS reported on Thursday.

Platinum was, therefore, likely to trade at prices between $900/oz and $1 375/oz for the remainder of the year, while palladium would likely trade at between $170/oz and $325/oz, the consultancy forecast.

In launching its ‘Platinum & Palladium Survey 2009’, senior consultant Peter Ryan highlighted that global vehicle production was expected to continue falling heavily during the year ahead, as the automotive sector struggled to sell unsold stock, which had accumulated as a result of the global fall in new vehicle sales in 2008.

As a result, demand for platinum and palladium in autocatalyst applications would likely see even larger drops than the 8% decline in demand for platinum and a 6% drop in demand for palladium in 2008.

“While the scale of this remains uncertain, a 15% drop in vehicle production would not be surprising and a similar further contraction in overall platinum-group metals (PGMs) demand seems probable,” stated Ryan.

Platinum was forecast to remain in surplus in 2009 despite increased demand from the jewellery sector easing the downturn in demand from the autocatalyst sector, GFMS highlighted.

In 2008, platinum’s gross surplus more than tripled to 260 000 oz, also on the back of a fall in demand from the autocatalyst sector.

Further, high platinum prices in the first part of 2008 had, in part, contributed to a 10% fall in platinum jewellery fabrication in 2008.

The platinum price reached its highest-ever level of $2 376/oz in March, 2008, which had resulted in heavy sales of old platinum jewellery, with private individuals, especially in Japan, cashing in on the higher prices, noted the report.

Combined with this, was the fact that further recycling of scrapped autocatalysts had put a “considerable volume” of platinum back into the market.

This had compensated, to a certain extent, the fall in mine production, which fell by 7% in 2008, mainly as a result of the electricity crisis that occurred in South Africa, which is the world’s largest producer of the metal, in early 2007.

The flooding of a major mine in South Africa had also contributed to the reduction.

GFMS expected a strong recovery in platinum jewellery fabrication to occur in 2009, as the platinum price would only modestly increase.

Meanwhile, Ryan noted that GFMS expected a neutral outcome in terms of South Africa’s platinum production for the year. While some losses would originate from the closure of downsizing of operations as a result of the global economic crisis, a number of new greenfield projects should offset these losses to some extent.

PALLADIUM OUTLOOK

Overall, lower PGMs production levels in Russia, the US and Canada, as a result of the closure of a number of operations, was expected to have a “more pronounced” impact on palladium supply, Ryan stated.

Meanwhile, GFMS said it expected palladium to struggle as a result of an absence in price responsive cushioning factors.

Overall, palladium jewellery demand had been marginally higher in 2008, despite a decline in Japanese fabrication, said GFMS.

The consultancy expected palladium fabrication in 2009 to rise, but said that this growth would be at a more moderate rate, as increased output of carat jewellery would offset further weakness in the white gold sector.

GFMS, meanwhile, said that it expected precious metals to continue to attract investors in 2009 against a background of weak stock markets and long-term inflation worries.