Platinum price stifled by stockpile

AFTER five lean years the short-term outlook for platinum remains gloomy, with the metal’s uninspiring price performance this year lagging the double-digit increases of other commodities.

According to the World Platinum Investment Council, at the end of 2012, global above-ground stocks of platinum stood at 4.1 million ounces. By the end of this year this figure is expected to have fallen to 2.1 million ounces.

The council estimates that platinum demand exceeded supply by 170 000 ounces this year, but there was still no dramatic price rally to compare with those in other metals.

Part of the reason for this was the substantial above-ground stocks.

The platinum council this week released its third-quarter 2016 supply and demand report, which spelt out the figures.

It said that demand for platinum was forecast to decrease by 3% in 2016 year on year to 8.04 million ounces, against 7.87 million ounces in supply.

Total platinum supply next year was forecast to fall 2% to 7.745 million ounces.

Trevor Raymond, director of research at the council, said that because of the above-ground stocks, companies were choosing not to produce more than what was needed.

“The thing is those stocks are only a problem if they are up for sale,” Raymond said.

He said that those holding the 2.1 million ounces had little inclination to sell because of the low platinum price.

If, however, they stopped selling altogether, “then the 170 000ounce deficit actually matters”, Raymond said.

He said the weak price had led people to wrongly believe there could not be a deficit in supply and demand, but it was the sale of accumulated above-ground stocks that was depressing the price.

Despite the poor performance in the price of platinum, the price of the related metal palladium soared 36% this year. Palladium is now at $734 an ounce, down from a peak of $742 earlier this month.

Platinum was nudging $920 an ounce this week, compared with prices of about $818 in early January.

This, according to René Carlo Hochreiter, an analyst at NOAH Capital Markets, is due to the fact that palladium is used in catalytic converters in North America and China, where there has been double-digit growth in car sales. This growth was likely to continue, he said, and there were no above-ground stocks of palladium.

“But the price between the two is getting close now so it would be cheaper to use platinum. Platinum is not really used yet in North America, where car sales are flying, and China,” Hochreiter said.

However, he forecast that platinum prices were likely to remain flat or increase by about 10% next year due to the implementation of tougher emissions standards in Europe that would increase demand for catalytic converters.

“There is different emissions legislation coming in from now until 2021,” Hochreiter said.

“In 2017, there are seven countries with more stringent legislation. I can’t see the demand for auto catalysts going down, but I can see demand for jewellery going down, the Japanese and Chinese are not feeling very rich at the moment. It’s quite a big market for platinum jewellery [China and Japan],” he said.

An analyst who did not want to be named said that in the long term, once above-ground stocks had been depleted, the platinum price would recover.

However, he said he struggled to see any reason for prices to improve markedly in the next 12 months.

Unlike with other industrial metals, there was no supply shortage on a scale big enough to boost the price.

Raymond said that next year, rising real operational costs, above-inflation wage settlements and reduced capital would put platinum production in South Africa, the world’s major source of the metal, under pressure.

“So it will remain flat, hence the deficit,” he said.

I can’t see demand for catalysts going down, but I can see demand for jewellery going down