Fundamentals reasserted
The year under review was witness to immense volatility in the prices of our main metals with platinum exceeding $600 and palladium prices soaring to over $1 000 per ounce. These prices led to a 47% increase in the price index achieved to $1 254 per ounce, the highest ever.

Despite almost record deliveries of Russian platinum during calendar year 2000, and a meaningful decline in Japanese jewellery demand, the platinum market remained resilient. Deteriorating economic conditions in 2001 are expected to pressurise the market but this should be countered by a robust automotive sector and stable jewellery demand outside of Japan, leaving an essentially balanced market for the year.

As forecast, substitution of palladium in the automotive and electronic industries, accelerated by the dramatic price movements of the metal and a significant slowdown in the information technology sector, will see demand shrinking from 2001. These fundamentals have been further exacerbated by consumer de-stocking and excessive Russian deliveries during the first quarter of 2001, possibly exceeding 4.0 million ounces, resulting in a near halving of the price.

The contraction of business conducted in the forward markets of Tocom and Nymex has limited the ability of producers and consumers to hedge themselves, while simultaneously reducing the speculative activity of the mainly Japanese general public. Without the influence of these forward markets, short-term supply and demand considerations are likely to have a greater influence on prices, as witnessed by activity in the daily London fixes.

Platinum
Demand for platinum in jewellery fell marginally (by 1%) to 2.84 million ounces, the first decrease since 1983. This was due to a sharp decline in the Japanese market, which outweighed strong growth in both China and the US.
Platinum supply and demand
Calendar years 2001 2000
(’000 ounces) Estimate
Demand
Automobile 1 980  1 925 
Jewellery (excl China) 1 550  1 740 
Jewellery (China) 1 100  1 100 
Industrial 1 485  1 450 
Investment (30) (60)
Net demand 6 085  6 155 
     
     
Supply    
South Africa 4 185  3 775 
Russia 850  1 150 
Other 510  395 
Recycling 580  545 
Net supply 6 125  5 865 
Surplus/(Deficit) 40  (290)
     
     

The ongoing weak economic conditions coupled with a surging price took its toll on fabrication in Japan, which fell by 20% to 1.06 million ounces in 2000. In terms of pieces, sales declined by only 4% compared with the previous year, due mainly to the fact that many manufacturers used this period to reduce metal stocks to alleviate difficult trading conditions. Sales in the lower price brackets were the worst affected as mainly younger buyers switched to more affordable alternatives.

China surpassed Japan as the world’s leading consumer of platinum jewellery as another year of growing demand, albeit at lower rates than in previous years, resulted in sales increasing by 16% to 1.1 million ounces.This was despite the high and sometimes volatile price, resulting in the erosion of manufacturers’ margins.

   
   
At prices above $600 many manufacturers halted production resulting in a shortage of product at the retail level. The move by the Chinese tax authorities to tighten up on the payment of taxes, also restricted fabrication. In the US, price was less of an issue as the market is dominated by the bridal and “upmarket” sectors. Strong growth in the first half of the year was tempered by weakening consumer confidence in the latter half as the economy began to slow. Demand increased by 15% to 380 000 ounces. In Europe demand remained firm with the strongest growth coming from the United Kingdom where the number of pieces hallmarked increased by 29%.
     
The global expansion of the platinum jewellery market took another important step forward last year with the launch, in September, by the Platinum Guild International (PGI), of a platinum jewellery campaign in India. The launch was limited to a small number of authorised manufacturers and retailers in Delhi and Mumbai. Market response has been very positive and the campaign will be extended to other cities during the year ahead. Given that India is the world’s largest gold market, it has the potential to be another significant market for platinum. Increased promotional spending by the PGI will bolster demand in the major markets, except Japan, which is expected to decline further next year.
     

Demand for platinum in autocatalysts continued to benefit from the ongoing tightening of emission legislation worldwide. The growing desire by automakers to reduce their dependence on palladium by moving to platinum-based systems began to gather momentum due to concerns about availability and price. The combined effect was that demand increased by 2.5% to 1.93 million ounces. Despite a 2% decline in European car sales, platinum demand benefited from a further surge in the sales of diesel vehicles and the introduction of Euro III legislation. The legislation, which applies to all new models from January 2000, requires higher platinum loadings for catalyst use with diesel engines. This sector will benefit further in 2001 when Euro III legislation is extended to cover all new vehicles.

 
   
In the US, there was a marginal increase in platinum demand as automakers reverted to platinum. With full compliance required this year with the Low Emission Vehicle standards, the requirements of which favoured palladium-rich systems, manufacturers are focusing on the next set of standards. This new series of more stringent emission legislation in both Europe (Euro IV) and the US (Tier 2), which places strong emphasis on carbon monoxide and oxides of nitrogen emissions will benefit platinum demand. In addition, platinum usage will be further increased by the Tier 2 standards which also require light duty trucks to meet the same stringent standards as cars, starting in 2004. Elsewhere in the world, 2000 saw the adoption of tighter emission legislation by various countries. These included Japan, China, India, South Korea and several smaller south east Asian countries.
     

Palladium
Demand increased by almost 4% to a record 8.86 million ounces primarily as a result of a further surge in automotive usage. Consumption by automakers rose by 11% to 5.38 million ounces. Palladium is the most effective metal for the control of hydrocarbon emissions, the main target of the most recent legislation. With the phase-in of these standards all but completed, automakers are now looking at reducing their dependence on palladium. Although this metal will remain a key ingredient in future formulations, usage will be cut by thrifting programmes and by moving to platinum/rhodium systems. These changes are expected to cut palladium usage by the auto industry by 30% over the next five years.

The strong move away from palladium to nickel-based multi-layer ceramic capacitors in the electronics industry continued with less than 50% of capacitors produced containing palladium. The substitution trend is forecast to continue and the shift will become more pronounced as production declines with the current economic slowdown.

Although usage in its two major applications is forecast to decline, the market will require Russian sales from stock to satisfy demand for the next few years. Thereafter, the market will return to a natural supply/demand balance to the benefit of both supplier and consumer.
Palladium supply and demand
Calendar years 2001 2000
(’000 ounces) Estimate  
Demand    
Automobile 5 155  5 380 
Dental 745  820 
Electronics 1 865  2 140 
Other 535  520 
Net demand 8 300  8 860 
Supply    
South Africa 2 050  1 840 
Russia * 4 750  5 200 
Other 1 180  950 
Recycling 320  265 
Net supply 8 300  8 255 
Surplus/(Deficit) –  (605)
* Supplies required to balance the market in 2001    
     

Rhodium
The rhodium market remained underpinned by strong demand from its main user, the automotive industry. Demand for autocatalysts rose by 17% to 579 000 ounces. A combination of more stringent emission legislation and the desire by automakers to thrift palladium were the main drivers of growth. This trend is expected to continue and will gain more impetus through new emission legislation, a feature of which is tighter limits for N0x for which rhodium is better suited.

 
Rhodium supply and demand
Calendar years 2001 2000
(’000 ounces) Estimate
Demand    
Automobile 585  579 
Other 89  92 
Net demand 674  671 
Supply    
South Africa 439  411 
Russia* 80  80 
Other 21  21 
Recycling 101  91 
Net supply 641  603 
Surplus/(Deficit) (33) (68)

* Excludes significant off-market transactions which have been placed in inventories
     

Nickel
Despite weakening consumption, the nickel market remained in deficit due to a combination of production cutbacks, disruptions and operating difficulties. The slowdown in stainless steel demand that emerged during the second half of 2000 has carried into 2001. With production continuing to expand through a combination of brownfield and greenfield expansions, the market is forecast to move into surplus this year.