BLBG; Platinum Has Biggest Deficit in 5 Years, Johnson Matthey Says
By Nicholas Larkin and Claudia Carpenter
Nov. 18 (Bloomberg) -- Platinum supply will fall short of demand by 240,000 ounces, the most in five years, in 2008 as global output drops faster than consumption because of mining disruptions in South Africa, Johnson Matthey Plc said.
The projected deficit is double last year's gap of 120,000 ounces. Supply will decline 4.2 percent to 6.28 million ounces, London-based Johnson Matthey said in a report. In comparison, consumption will fall 2.3 percent to 6.52 million ounces as an economic slowdown is mitigated by increased use of platinum in autocatalysts as Europe tightens rules on vehicle pollution.
``Car production on the one side isn't looking that healthy,'' Peter Duncan, market research general manager at Johnson Matthey, which makes a third of all autocatalysts, said in an interview. ``But you've got the legislative effect, which is really pushing platinum and palladium demand in Europe.''
Demand from European automakers will jump 16 percent as they boost stockpiles in preparation for the tighter emissions laws next year even as U.S. producers suffer, Johnson Matthey said. General Motors Corp. is among producers seeking a U.S. bailout as the company, along with Ford Motor Co. and Chrysler LLC, struggle with mounting losses and their worst sales year since 1991.
Platinum has tumbled 64 percent since reaching a record $2,301.50 an ounce in March as the world credit crisis forces investors to liquidate holdings of commodities. It has averaged $1,672 this year, still 28 percent higher than in 2007, and traded at $819.25 by 12:50 p.m. in London.
`Speculator Binges'
``It was the speculator binges that caused the price to go up and then down this year more than the fundamentals,'' Duncan said in London. ``If the fundamentals were to kick back in, they would support a stronger price.''
The metal may drop as low as $700 an ounce in the next six months as the financial crisis prompts investors to switch to cash, Johnson Matthey said. At the same time, a reduction in selling by money managers would bring the price back in line with demand and supply and push prices as high as $1,400, it added.
``Something like 2 to 3 million ounces of platinum were sold by investors in the second half,'' said John Cullen, general manager for sales. Overall, net investment demand will drop 15 percent to 145,000 ounces this year, according to the report.
Rebounding demand for platinum jewelry may also buoy prices next year after falling almost a quarter to 1.12 million ounces in 2008, it said. ``Jewelry demand could be very strong,'' Cullen said. Asian consumption ``is absolutely booming at the moment.''
Palladium, Rhodium
Palladium, also used in autocatalysts, will have a supply surplus of 320,000 ounces this year, the lowest since 2000, Johnson Matthey said. Record investment demand, mainly through exchange-traded funds, will boost global consumption, while supply will fall in Russia, the biggest producer, because of delayed shipments to refiners and lower smelter output.
Demand from the jewelry industry will rise, snapping a two- year decline, and consumption will increase from automakers in Europe and China, Johnson Matthey said. Investors who bought palladium in the first quarter have sold little amid the decline in commodities, unlike those who held platinum, it said.
Palladium, which traded at $218.75 an ounce today, has slipped 63 percent since touching $595 in March.
``Supply is impacted by the global recession and you've got demand looking pretty strong in most areas,'' Duncan said.
Rhodium will be in a supply deficit of 62,000 ounces in 2008, mainly on South African mining disruptions. Consumption of ruthenium, used for coating computer hard disks, will drop to 787,000 ounces because of new refining capacity. Iridium demand will rise to 132,000 ounces this year as the metal's use in spark plugs and the electronics industry increases, the company said.
Mining in South Africa, the world's biggest platinum producer, has been hit by power cuts and electricity rationing by state-run utility Eskom Holdings Ltd., which expects shortages to last through 2012.
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net
