Platinum and palladium have been among the most prominent casualties of the selling that has swept commodity markets since the summer with prices for both precious metals down almost two-thirds from their highs for the year.
Platinum prices, after reaching a record $2,290 a troy ounce in early March, sank by 63.7 per cent to $831 a troy ounce on Tuesday. Palladium has dropped 64.1 per cent to $212 a troy ounce since hitting a high for the year of $590, also in March.
Tumbling car sales in North America and Europe have contributed to a dramatic shift in investor sentiment towards both platinum and palladium, which play a vital role in diesel and petrol catalysts (respectively) in reducing emissions. In its twice-yearly assessment of precious metals markets, published on Tuesday, Johnson Matthey said it expected demand for platinum from carmakers in North America to fall 36.1 per cent this year and palladium demand to fall 20.6 per cent.
Worldwide demand growth from the car industry for platinum is expected to slow to 2 per cent this year, following a rise of 6.1 per cent in 2007, while the increase in palladium demand is forecast at just 0.7 per cent after a jump of 13.2 per cent last year.
Demand growth from China’s car industry is expected to remain strong for both metals, with platinum up 14.3 per cent and palladium up 26.2 per cent, helped by improvements in emissions standards. But the slowdown in demand from the car industry and the sharp falls in platinum and palladium prices have forced producers to scale back investment plans and to cut output.
This month, Stillwater Mining and North American Palladium both announced they were reducing production guidance for next year. On Tuesday, Lonmin, the world’s third-largest platinum producer, said all open-cast operations would be suspended and warned that its Limpopo mine was “uneconomic”.
Calling on rival producers to cut output, Ian Farmer, Lonmin’s chief executive, said he did not expect to see “any material recovery in metals prices before 2010 at the earliest”.
Michael Rawlinson, analyst at Liberium Capital, said Lonmin’s production next year could slip to 625,000-650,000 ounces compared with the company’s guidance for output of about 725,000 ounces if Limpopo and open-pit production were removed and there was no improvement from other operations.
The combination of a deteriorating outlook for demand and supply cutbacks has made price forecasting fraught with difficulty. Johnson Matthey said on Tuesday that if the present economic crisis continued and investors shunned commodities, platinum could trade as low as $700 a troy ounce. A recovery in risk appetite could help platinum prices to trade as high as $1,400 a troy ounce over the next six months.
Johnson Matthey’s forecast range for palladium prices over the next six months was also wide, between a low of $125 a troy ounce and a high of $300.
