AB: Platinum group metals to climb as markets tighten
* Platinum seen averaging $1,750/oz in next six months
* Palladium expected to average $710/oz in same period
* Both metals seen tightly balanced in 2011 as demand grows
LONDON, Nov 16 - Platinum and palladium are set to build on this year's stellar gains in 2011 as a tightening of the metals' underlying fundamentals keeps sentiment upbeat, metals refiner Johnson Matthey said in a report on Tuesday.
Palladium in particular runs the risk of tipping into a global market deficit, it said, as demand from automakers, the main users of the white metals, continues to recover and a question mark remains over the outlook for Russian stock sales.
Platinum prices are expected to average $1,750 an ounce in the next six months, JM said, and to remain in a range of $1,550 and $1,900. Currently spot platinum is bid at around $1,700 an ounce, having risen 16 percent so far this year.
In its May report, JM forecast that platinum would trade as high as $2,000 an ounce in the six months following its release, slightly above its latest forecast.
This reflects the correction that hit commodities, notably platinum group metals, immediately after the report was released, JM said. "In a sense, we have re-set," said the refiner's precious metals marketing director, Mark Bedford.
Palladium is expected to average $710 an ounce in the same period, within a range of $550-850 an ounce. The metal is currently bid at around $700 an ounce, just below a 9-1/2 year high of $740.72 it hit last week.
Both metals will be helped by strength in gold prices, which hit a record near $1,425 an ounce last week. This is underpinning confidence in the asset class, JM said.
The platinum market balance will be "close to balance" in 2011 after narrowing its market surplus to 290,000 ounces in 2010 from 635,000 ounces last year, JM said.
"For 2011... we anticipate that industrial demand will continue to be very strong, particularly in China, and similarly automotive demand for platinum will be growing in most regions," JM's publications manager Jonathan Butler told Reuters.
"Close to balance is our view for 2011, although there might be a moderate surplus," he said.
He added that for palladium, platinum's sister metal, the company also expects tight supply and demand fundamentals to persist after the market narrowed its market surplus to just 45,000 ounces this year from 780,000 ounces in 2009.
"(Palladium will be) close to balance, but the big question is Russian state stocks," he said. "Without those, we could see a shift into substantial deficit."
Excluding supply from Russian state stock sales, which have added a significant amount of metal to the palladium market for a number of years, the market would have been in a deficit of 965,000 ounces this year, JM's data showed.
Automotive demand for both platinum and palladium is expected to continue its recovery next year. JM sees automotive demand for platinum at 2.985 million ounces this year, up 37 percent from last year but still 18 percent below 2008 levels.
This will be helped by an expected strong recovery in European car demand. The European market, unlike China or the United States, chiefly uses diesel-engined cars, which have a higher loading of platinum than palladium in their exhausts.
European autocatalyst demand for platinum is expected to rise some 48 percent this year, to 1.415 million ounces from 970,000 ounces in 2009.
JM's senior market analyst Lucy Bloxham said a recovery in autocatalyst demand from the United States was also expected. "It was hit very badly last year, so the recovery has been strong there," she said. "We are expecting that to continue as vehicle sales recover to previous levels."
"The other thing is that there is tightening legislation in the United States going forward," she added. "Heavy-duty demand this year has seen a boost from the U.S. 2010 regulations coming into force, so that is positive for platinum demand."
Autocatalyst demand for palladium is seen rising 27 percent this year, but it fell much less than platinum demand in 2009 and is expected to be above 2008 levels in 2010.
INVESTMENT DEMAND EXPECTED TO WILT
The burgeoning investment demand that drove the platinum group metals to multi-year highs in 2010 could ease a touch next year, the company said, although a revival in buying by industrial users and carmakers is expected to offset this.
Investment demand will be tempered, JM said, by redemptions from products like longer-established European exchange-traded funds, though newer U.S. ETFs are expected to continue to see decent inflows.
It sees investment demand for platinum dropping 34 percent this year to some 435,000 ounces from 660,000 ounces in 2009, while investment demand for palladium is seen inching up just 7 percent, against last year's 49 percent leap.
"For next year, we won't see as high levels of investment demand as this year," said Butler. "There is an awful lot of metal being held in ETFs. Slow and steady redemptions there may net off some new demand."
Platinum jewellery demand is expected to slip slightly this year, to 2.42 million ounces from 2.81 million, as rising prices deter buyers. Palladium jewellery offtake is seen declining to 630,000 ounces from 775,000 ounces.
China was the world's biggest platinum jewellery market last year, accounting for 400,000 ounces of demand, against 60,000 ounces from the United States and 75,000 ounces from Japan.
"Last year we saw a huge increase in platinum demand in China as jewellers responded to lower prices at the beginning of the year," said Bloxham. "This year, with their pipelines full, we haven't seen that happen again."
"As prices have been steadily rising, purchases have tended to be lower," she added. "Having said that, demand remains robust, with aggressive buying on price dips."
On the supply side of the market, platinum output from South Africa is seen dipping a touch this year to 4.585 million ounces from 4.635 million, and will be broadly flat in 2011, JM said.
Palladium supply will rise from both Russia and South Africa, the two biggest producers of the white metal. Overall it is expected to increase some half a percent this year.
