Platinum Market Views | Platinum Group Metals

The platinum market was close to balance in 2010, with a surplus of just 20,000 oz. Supplies remained almost flat at 6.06 million ounces, while gross demand increased by 16% to 7.88 million ounces. Recycling of platinum increased by almost a third to 1.84 million ounces.
Gross demand for platinum in autocatalysts increased by 43% to 3.13 million ounces in 2010 as the global automotive sector bounced back from a poor 2009. Increased vehicle production in Europe in particular benefited platinum.
Gross industrial demand for platinum increased by 48% to 1.69 million ounces in 2010, led by growth in the glass and chemical sectors.
Gross demand for platinum from the jewellery sector fell by 14% to 2.42 million ounces in 2010 mainly due to softer Chinese demand. Purchasing of platinum by the jewellery industry in other regions remained fairly stable.
Identifiable physical investment demand for platinum remained almost flat in 2010 at 650,000 oz.

The recovery of the global economy in 2010 helped drive gross demand for platinum up by 16% to 7.88 million ounces, its highest level since 2008. Supplies remained largely flat at 6.06 million ounces while open loop recycling of platinum increased to 1.84 million ounces. The platinum market tightened in 2010 and ended the year very close to balance, with a 20,000 oz surplus. Platinum's average price for 2010 was an all-time high in dollar terms, at $1,611.

Supplies of platinum from mining operations increased by just 35,000 oz to reach 6.06 million ounces in 2010. Shipments from South Africa remained flat at 4.64 million ounces while increases in supply from Russia and Zimbabwe were largely offset by decreases in North America and elsewhere. Due to a production profile that was heavily loaded towards the end of the year, some of the metal refined in South Africa in 2010 was not shipped by the year-end, therefore supplies fell below the level of refined output. There was some improvement in underlying mine production, which rose by around 3%, reflecting recovery at Lonmin's Marikana operations and at the Impala lease area.

Total supplies of platinum from Russia increased by 40,000 oz in 2010. Although pgm grades have fallen in recent years at Norilsk's Taimyr operation, in 2009 the company increased the processing of above-ground materials to compensate. Production of platinum in North America fell by 50,000 oz in 2010. Despite increases in output in some operations, others were affected by strikes and reduced mill throughput. Platinum supplies from Zimbabwe grew by 50,000 oz in 2010 as Zimplats increased output following the commissioning of the Phase I expansion at its Ngezi mine.

A rise in vehicle production across all regions in 2010 helped drive up demand for platinum in autocatalysts. With an improved global economic outlook, manufacturing of vehicles worldwide reached 78 million units in 2010, an increase of almost 16 million compared with 2009. Gross platinum demand in the autocatalyst sector rose by 43% in 2010 to 3.13 million ounces, a considerable improvement compared with the previous year but still some way off pre-2009 levels of demand. Driving much of this increase was the use of platinum in diesel autocatalyst formulations in Europe. Diesel passenger vehicle production recovered strongly in 2010 as the overall vehicle market grew and scrappage incentives, which had favoured small gasoline cars, came to an end. This meant there was a recovery in the market share of diesels to around 48%, which helped boost demand for platinum in autocatalysts in Europe by 51% to 1.47 million ounces. Higher production of heavy duty diesels worldwide accelerated platinum demand, as did more stringent heavy duty diesel emissions regulations in the US which generally meant an increase in platinum catalyst loadings. Although usage of platinum in autocatalysts has fallen from its peak in 2007 as partial substitution with palladium has occurred, platinum remains the dominant component of diesel emissions control systems.

In 2010, gross industrial demand for platinum increased by 550,000 oz to 1.69 million ounces. Resurgent demand for platinum from the electrical, chemical and glass sectors came as a result of economic recovery in traditional markets such as Europe and North America, and substantial new demand as manufacturing capacity was constructed in China and elsewhere in Asia. The glass sector in particular saw remarkable growth in demand for platinum in 2010 as production of thin-film transistor liquid crystal display (TFT-LCD) glass for use in electronic displays increased, as did output of glass fibre for construction materials. This stimulated purchases of platinum for glass manufacturing lines, which exceeded returns from older decommissioned facilities.

Demand for platinum in the chemical sector increased by 53% in 2010 to 445,000 oz as manufacturing plants boosted capacity utilisation. Growth was fastest in emerging markets where demand for polymers is increasing rapidly. In traditional markets, a cautious approach to investing in new production capacity tempered the growth in platinum demand. Gross platinum demand from the global electrical sector increased by 30,000 oz to 220,000 oz as higher sales of electronic equipment increased the demand for platinum in hard disk drives, as well as in plating and thermocouples.

Gross demand for platinum in the jewellery sector was 2.42 million ounces in 2010, 14% lower than in 2009. Demand from the Chinese jewellery industry remained relatively robust at 1.65 million ounces. Although this represented a fall of 21% compared with 2009 when lower prices encouraged exceptional levels of stock building and sales, this was a healthy figure given that platinum traded on average 34% higher in 2010 than 2009. The Chinese jewellery sector remained strong compared with historical levels: demand was around 600,000 oz higher in 2010 than in 2008.

A key feature of 2010, as in recent years, was the size of the investment market for platinum. Over the past three years, growth in investment has had an increasing influence on the metal's price, while the price has in turn influenced investment levels. The total cumulative volume of platinum allocated in various physically-backed exchange traded funds (ETFs) around the world exceeded 1.2 million ounces in December 2010, an historic high. Similarly, total combined net long platinum positions on NYMEX and TOCOM reached record levels of over 2 million ounces by the end of 2010. The dynamics of the investment market operate on a wholly different timescale from the supply of platinum. The volume of platinum that went into ETFs in 2010 was larger than the year-on-year increase in global supplies of platinum in any year apart from 1993.

However, the platinum market remains very different from the gold and silver markets in that it still remains primarily industrial, not speculative. The rationale for platinum as an investment metal can be traced to the fundamentals of supply and demand, as well as the low opportunity cost of investing in ETFs in a low interest rate environment. Investors appear to remain convinced that, in the longer term, demand will outstrip supply. The strong increase in demand for platinum in 2010 undoubtedly drove physical investment in platinum, which in turn added 650,000 oz of new demand, mainly in the form of ETFs.

Open loop recycling of platinum returned 1.84 million ounces to the market in 2010. A resurgence in the automotive sector meant rates of platinum recovery from end-oflife vehicles increased to 1.09 million ounces. This was boosted by the returns from car scrappage schemes which increased the volume of platinum from older vehicles processed through the recycling system. The high metal price in 2010 also helped incentivise recycling in the jewellery sector, lifting the total jewellery scrap figure to 745,000 oz.