Platinum Supply to Lead to Biggest Shortage in a Decade

on Nov 14, 2012

On 13 November 2012, the Financial Times reported the forecast of the precious metals refiner Johnson Matthey (LON:JMAT) that in 2012, platinum would fall short of demand by the most in at least a decade due to the crisis in South Africa’s mining industry, which has severely impacted major platinum producers such as Lonmin (LON:LMI) and Anglo American (LON:AAL).

**Platinum Supplies Short of Demand in 2012, Johnson Matthey Says**
The London-listed Johnson Matthey forecasts that platinum sales from South Africa in particular will decline by 12.5 percent, reaching an 11-year low. This in turn would push the global platinum market into a demand deficit of 400,000 ounces, relative to a surplus of 430,000 ounces in 2011. Johnson Matthey notes that this would be the largest shortage since 2002. Supply of palladium, which is another platinum group metal (PGM), will lag demand by as much as 915,000 ounces, the most since 2000, compared with 2011’s surplus of 1.26 million ounces.

“It’s unlikely that supplies of either platinum or palladium are going to rise,” noted Jonathan Butler, publications manager at Johnson Matthey, as quoted by Bloomberg. “We’re assuming that demand is going to remain robust for both metals. Overall, we’re positive on investment demand, that conditions will remain favourable.”
**South Africa Strikes**

The South African platinum sector, which accounts for three quarters of global platinum supply, was severely disrupted by wildcat strikes in August and September. Bloomberg reports that prior to the South African unrest, Johnson Matthey had forecast a surplus for 2012.
!m[Platinum supply defecit to reach a ten year peak](/uploads/story/812/thumbs/pic1_inline.png)“Of course the problems on the supply side still continue with labour disruption,” noted Mr Butler, as quoted by the mining news website Mineweb. “We may indeed see further closures of marginal operations unless conditions improve and of course we are expecting the full impact of the supply disruptions from strikes this year to be felt into 2013.”

**Falling Palladium Sales from Russia**
And while the South African labour unrest is the main reason for the projected platinum deficit, Bloomberg reports that lower output from mines and stockpiles in Russia, the largest producer of the metal, will contribute to the decline in palladium supply. In its report, Johnson Matthey notes that miners in Russia are extracting less palladium at a time when state inventories are probably almost depleted.

The lower palladium and platinum output is also combined with higher consumption from the automotive sector, with carmakers typically using more of the metal for gasoline engines and more platinum for diesel models. “For palladium, we see some further growth in autocatalyst demand,” Mr Butler pointed out as quoted by Bloomberg. “Technology changes next year driven by environmental legislation are expected to result in some additional demand for platinum in Europe, despite the weakness in the European car market.”
**PGM Prices**
Bloomberg reports that Johnson Matthey forecasts that platinum will trade in a range of $1,400-$1,800 (£881-£1,133) an ounce over the next six months, averaging $1,625 (£1,023). Palladium is expected to average $650 (£409) an ounce in the period, moving in the $550-$750 (£346-£472) range.