Platinum market

There was renewed optimism in the metals market following the announced launch of the US based ETFs for both platinum and palladium.  Prices for platinum climbed throughout the financial year from just over $1 500 per ounce to end at approximately $1 800 per ounce, leaving an average for the year of $1 610 – 34% higher than the prior year.  A major sell off during the annual Platinum Week activities in May, due to renewed economic fears interrupted this rising price trend, but this soon reasserted itself as the US decision to launch Quantitative Easing 2 (QE2) in the midst of a slow economic recovery, triggered increased investment demand for commodities.

In the automotive markets, a significant recovery in worldwide production and sales stimulated increased usage of PGMs.  The recovery of the diesel market share in Europe, which resulted in diesel engine sales once again exceeding those of petrol engines, was particularly beneficial to platinum demand.  European platinum usage as a result grew by nearly 50% over the prior year.

Notwithstanding the emergence of China as the world’s largest vehicle market and production facility, and the restoration of US vehicle inventories to more normal levels, total platinum usage in the automotive sector still fell short of 2007 levels.  Encouragingly usage exceeded 3 million ounces once again, supported also by increased fitment of catalysts in heavy duty applications.  Government incentives offered in China – which ended at the end of 2010, have clearly had a beneficial effect for the year but may as a consequence dampen sales for 2011.

The uncertain macro-economic environment stimulated a flurry of activity into physical and paper investment productions, with the US-based platinum ETF adding half a million ounces during the year.  This substantial rise in investment demand had a greater influence on prices for the year than fundamental activity.

Sustained higher platinum prices throughout 2010 resulted in significantly reduced Chinese jewellery demand.  This has been, in part, due to the strong retain performance and high levels of inventory build in 2009, which at the time provided great support to the platinum market.  It should be noted that the price tolerance of the Chinese people is rising all the time, which is a very encouraging development.

*Estimate

Palladium market

Palladium prices began the year at just above $400 per ounce and hit a high of $797, a level not seen since 2001.  Prices average $525 per ounce for the year, which is double the price achieved for 2009.

The fundamental driver for the palladium price has been the dramatic rise in vehicle production in Asia and continued production increases in the US, both of which are gasoline markets and carry predominantly palladium catalysts.  This drove usage for the year beyond the five million ounces level.  Increased substitution of platinum by palladium in diesel applications added further demand for this metal.

Investment demand also increased during the year and this, in combination with the launch of the US ETF for palladium resulted in an additional million ounces of demand, providing further impetus to the rising price.  The probable end to Russian destocking of palladium, which has added roughly one million ounces per year for the last six years, has also benefited sentiment in this market.

*Estimate

Rhodium market

In comparison to both platinum and palladium, fluctuations in the price of rhodium have been more modest, as the increase in demand on the back of growing automotive production was met by adequate suppliers of the metal.  The average price for the year was over $2 400, approximately $800 higher than the previous period reflecting the rebound in vehicle build.

*Estimate

Market outlook

Despite the recovery in metal prices experienced during the 2010, the current and future environment is not without its challenges.  2011 has seen the re-emergence of EU debt concerns and austerity measures undertaken by government are expected to dampen demand for goods and services in large part of Europe.  The US is also showing little sign of recovery with rising debt and stubbornly high unemployment.  These challenges along with persistently higher oil prices and the threat of inflation will continue to exert a negative influence on the prospects of further economic recovery.

Notwithstanding the macro challenges faced by the develop economies, the resilience displayed in emerging markets, particularly the Brazil, Russia, India, China (BRIC) economies, should continue to drive demand for all commodities.  Whilst efforts to cool China’s economy have proven successful, this region could be re-stimulated given the massive infrastructural programme envisaged over the next five to ten years and the risk of social unrest in a weakening economy.  Pent up demand for vehicles is growing in all regions of China and the developing world and expectations are that this demand will only begin to be satisfied during the next five years.  Growing vehicle demand in emerging economies and tighter emission legislation throughout the world is, therefore, likely to underpin  strong fundamental demand for PGMs in the medium term.  Efforts by the Chinese authorities to limit new car registrations in some cities to curb both congestion and pollution may impact on demand for new vehicles, but the inclusion of emission control devices in heavy duty and off-road vehicles should more than compensate.

This forecast growth in demand, particularly for palladium, is likely to be confronted by serious metal deficits as the growth in recycled and newly mined metal proves insufficient to compensate for the end of Russian destocking.

Numerous challenges facing the South African PGM producers will require a huge effort from management to ensure sufficient supply of these metals are available to meet the world’s growing demand for them.