| |
|
|
 |
 |
|
| |
|
|
|
|
| |
|
Platinum
|
| |
|
|
 |
Supplies
of platinum climbed faster than demand in 2003, reducing the
market deficit to 280,000 oz. |
| |
 |
Purchases
of platinum for jewellery manufacture slipped by 13 per cent
in 2003, primarily as a result of the rapidly rising price of
the metal. |
|
|
Demand
for platinum in 2003 edged up by 50,000 oz to 6.52 million
oz. Purchases of metal by the autocatalyst industry increased
robustly but demand from the jewellery market dropped, primarily
as a consequence of the sharp rise in the price of platinum.
Supplies of platinum expanded more rapidly than demand,
rising by 270,000 oz to 6.24 million oz. The market, therefore,
remained in deficit for the fifth year in succession but
the gap between supply and demand narrowed.
|
| |
|
Purchases
of platinum for use in autocatalysts jumped by 23
per cent to 3.19 million oz in 2003. In North America, auto
makers bought substantially more metal than the year before,
when inventories of platinum were used to supplement purchases.
European demand climbed to a record high on the back of
further growth in diesel car sales, and Japanese autocatalyst
demand for platinum was boosted by new heavy-duty diesel
emissions regulations in Tokyo. The burgeoning Chinese car
market provided additional demand in the Rest of the World
region, whilst tightening emissions standards worldwide
also helped to support platinum use.
|
|
|
Demand
for platinum from the global jewellery industry dropped
by 13 per cent in 2003 to 2.44 million oz as both Chinese
and Japanese manufacturers cut back their purchases of the
metal. In China, the fast climbing spot price of platinum
meant that profit margins throughout the sector were squeezed;
whilst in Japan there was a significant increase in the
volume of metal recycled from stocks. In both markets, the
higher platinum price enhanced the competitiveness of white
gold jewellery.
|
|
|
Total
industrial demand for platinum softened to 1.52 million
oz. Electrical demand rose as orders for electronic goods
containing hard disks rebounded from the downturn the year
before, and shipments of high temperature thermocouples
to the steel industry increased. Offsetting this, however,
was a drop in purchases of platinum-clad equipment by the
glass industry as manufacturers stepped up efforts to minimise
their holdings of metal and as fewer new glass furnaces
came on stream in Asia.
|
|
|
|
|
Net
demand for physical platinum investment products slumped
to just 15,000 oz. The rising price of the metal stimulated
sales of greater volumes of coins and bars back to the market
and affected new purchases by investors.
|
|
|
Supplies
of platinum grew by 270,000 oz to 6.24 million oz in 2003.
The expanding pgm mines in South Africa and Zimbabwe delivered
higher platinum output, while shipments from Russia rose as
primary production was supplemented by sales from stocks. These
increases outweighed a drop in North American platinum sales.
|
|
|
The
platinum price performed remarkably in 2003, appreciating
by more than 35 per cent from the opening fixing of the year
of $600 to the final fixing of $814. Although platinum supply
continued to lag behind physical demand, the strength of the
price owed much to purchasing of platinum futures by funds
through the NYMEX and TOCOM exchanges.
|
|
|
The
speculative buying of platinum was part of a substantial flow
of fund money into commodities as a whole in 2003, related
to the weakening US dollar and rising global industrial output.
In addition, the appreciation of the rand meant cash flows
and profit margins for South African pgm producers were reduced,
raising market expectations that expansions to supply would
be deferred. These were confirmed in December when Anglo Platinum
scaled back its expansion programme, reducing its target production
for 2006 by 500,000 oz to 2.9 million oz.
|
|
|
|
| |
|
Platinum
Supply and Demand
'000
oz
|
|
2002
|
2003
|
| Supply |
|
|
| South
Africa |
4,450
|
4,670
|
| Russia |
980
|
1,050
|
| North
America |
390
|
295
|
| Others |
150
|
225
|
|
|
| Total
Supply |
5,970
|
6,240
|
|
|
| Demand |
|
|
|
|
|
| Autocatalyst
: |
gross |
2,590
|
3,190
|
|
recovery |
(565)
|
(645)
|
| Jewellery |
2,820
|
2,440
|
| Industrial |
1,545
|
1,520
|
| Investment |
80
|
15
|
|
|
| Total
Demand |
6,470
|
6,520
|
| Movements
in Stocks |
(500)
|
(280)
|
| |
|
|
·
|
Demand
for platinum in 2003 increased by just under 1 per cent
to 6.52 million oz. Autocatalyst purchases of platinum climbed
but demand from the jewellery sector fell.
|
|
|
|
·
|
Purchases
of platinum for use in autocatalysts surged by 600,000
oz to 3.19 million oz. US auto companies returned to the
market for almost all their metal requirements, having run
down stocks in 2002, whilst diesel car sales in Europe grew
rapidly.
|
|
|
|
·
|
Jewellery
demand for platinum dropped by 380,000 oz to 2.44 million
oz.The rising platinum price cut profit margins for Chinese
jewellery fabricators and affected retail sales in Japan.
|
|
|
|
·
|
Industrial
demand for platinum weakened to 1.52 million oz. Use of
the metal in hard disks increased but glass manufacturers
reduced their holdings of metal and less new capacity was
added in Asia.
|
|
|
|
|
·
|
Supplies
of platinum grew by 4.5 per cent to 6.24 million oz. South
African output expanded steadily and Russian sales increased,
but North American production dropped.
|
|
|
|
·
|
The
platinum market remained in deficit for the fifth year in
succession. Funds built up substantial long positions and
the price climbed by 40 per cent to a peak of $842
in December, the highest fixing since March 1980.
|
| |
|
|
|
|
|
Impala
suspended mining at the Crocodile River operation in South
Africa in 2003 due to very difficult geological conditions underground. |
|
|
Supply
|
| |
|
Supplies
of platinum from South Africa increased by 5 per
cent to 4.67 million oz in 2003, a new record high. The
total, however, was not as great as it might have been
as several mine and process plant expansions slipped behind
schedule.
|
|
|
Anglo
Platinum produced 2.3 million oz of refined platinum in
2003, an increase of just over 2 per cent on the previous
year but 100,000 oz below the initial plan. Output at
the group’s expanding Waterval mine jumped higher but
did not hit target, whilst difficult geological conditions
at the Modikwa joint venture slowed development of the
mine. Refined platinum output at Anglo Platinum was also
affected by the simultaneous commissioning of a new smelter
at Polokwane, and a new converting process and slag cleaning
furnace at Rustenburg, which caused a higher than planned
temporary build-up in pipeline stocks of metal.
|
|
|
A
combination of the appreciation of the rand, falling palladium
and rhodium prices, and rising local costs caused Anglo
Platinum to re-evaluate its long-term expansion programme
in 2003. In November the group announced that it would
reduce the pace of development at several projects, including
the planned new mines on the eastern limb of the Bushveld
Complex. As a result, Anglo Platinum now expects to produce
a total of 2.9 million oz of refined platinum in 2006
compared with the previous target of 3.4 million oz.
|
| |
|
Production
from Impala Platinum's core lease area remained broadly
stable in 2003 at a little over 1 million oz of refined
platinum. At the Crocodile River mine, however, in which
Impala holds an 83 per cent interest, output suffered
due to very difficult geological conditions underground.
In November, Impala halted mining at the site and in March
2004 reported that it had reached an agreement in principle
to sell its entire interest in the operation to the Salene
Platinum Consortium. During 2003 Impala also announced
its intention to divest its 27 per cent shareholding in
Eastern Platinum and Western Platinum, the operating subsidiaries
of Lonmin, but the deal had not been finalised by late
April 2004.
|
|
|
|
|
Platinum
output from Lonmin's operations increased by 21 per cent
last year to 916,000 oz. This was achieved despite the company's
new smelter being out of action for repair for almost the
entire year. The volume of ore mined jumped due to the open
cast exploitation of shallow reserves of UG2 ore, and average
grades and recoveries also increased.
|
| |
|
Northam
Platinum successfully increased pgm output in 2003 as the
volume of ore rose and head grades improved. Production
of pgm attributable to Aquarius Platinum jumped by more
than a third as mine production at all of its operations
increased, and output at Southern Era's developing Messina
project also climbed.
|
|
|
Supplies
of platinum from Russia increased by 7 per cent to
1.05 million oz in 2003 as mine production was supplemented
by sales of metal from stocks. The sales of metal from inventories
are believed to have been made primarily, if not entirely,
by the state treasury, Gokhran, rather than by the Central
Bank. A decree to repeal the secrecy laws concerning pgm
production data was signed by President Putin in November,
but it now appears that further procedures have to be completed
before details of geological reserves and mine production
can be released.
|
|
|
North
American supplies of platinum dropped by almost 25 per
cent in 2003 to 295,000 oz - due almost entirely to a slump
in pgm output at Inco. The fall was partly predicted (the
depletion of a pgm-rich ore zone at one of the company's
mines) and partly unexpected (a three month strike during
the summer). In contrast, Zimbabwean platinum production
accelerated to 140,000 oz in 2003, an increase of almost
50 per cent, as expansions of the Ngezi and Mimosa operations
bore fruit.
|
| |
|
|
|
|
|
Demand
|
| |
|
The
autocatalyst industry purchased a record total
of 3.19 million oz of platinum in 2003, up by 23 per cent
compared with the year before. In North America, purchases
of platinum by auto manufacturers jumped to 880,000 oz,
a year-on-year increase of 310,000 oz. Much of the surge
in buying was because US auto makers had substantially
depleted their inventories of platinum during 2002, and
so had to purchase almost all of their metal requirements
in the market last year.
|
|
|
Purchases
of platinum by the European auto industry climbed by 11
per cent in 2003 to 1.34 million oz, propelled by rising
demand for platinum-based autocatalysts for diesel cars.
Sales of diesel cars in Europe rose by over 5 per cent
to exceed 6 million units for the first time as their
market share grew to more than 43 per cent. In addition,
average platinum loadings per car increased as manufacturers
introduced models that meet tighter emissions limits that
will be imposed under Euro IV regulations.
|
|
|
|
|
|
|
The
introduction of new heavy-duty diesel emissions legislation
in the Tokyo metropolitan area was largely responsible for
an 19 per cent increase in Japanese autocatalyst demand
for platinum in 2003, the total rising to 510,000 oz. Trucks
and buses operating in Tokyo and surrounding areas that
did not meet the tough NOx and particulate matter emissions limits were required to be retrofitted with diesel oxidation
catalysts or catalysed particulate filters.
|
| |
|
Platinum
demand for autocatalyst manufacture in the Rest of the World
accelerated by 21 per cent to 460,000 oz, driven by a phenomenal
rise in new car production and sales in China. Output of
Chinese manufactured cars leapt to just under 2 million
units, up from 1.13 million in 2002, whilst new car sales
almost doubled, also to around 2 million vehicles. Car sales
in India also increased rapidly in 2003, nearing the 700,000
mark whilst emissions regulations in both countries continued
to tighten.
|
|
|
Global
demand for platinum from the jewellery industry fell
by 380,000 oz in 2003 to 2.44 million oz as manufacturers
in both China and Japan purchased significantly less metal
than the year before.
|
|
|
Purchases
of platinum for jewellery manufacture in China dropped by
19 per cent to 1.2 million oz, the first fall since the
market started to develop in the mid-1990s. Profit margins
on platinum jewellery in China dropped throughout the year
as the spot price of the metal increased faster than rising
retail prices.
|
| |
|
As
a result, platinum stock levels were reduced throughout
the industry, manufacturers deferred purchases of metal,
many increased their output of higher margin white gold
jewellery, and some suspended production of platinum jewellery
altogether. A combination of higher prices for platinum
jewellery, fewer new platinum designs coming to the market,
plus increased choice and promotion of white gold items
resulted in retail sales of platinum jewellery falling by
an estimated 10 percent in 2003.
|
|
|
On
a more positive note, the advent of trading of platinum
on the Shanghai Gold Exchange in August enabled manufacturers
to source metal more easily and made pricing more transparent.
By the end of the year more than 246,000 oz of platinum
had been bought via the exchange.
|
|
|
In
Japan, purchases of platinum for jewellery manufacture slid
by 15 per cent to 665,00 oz, around half the level of demand
of four years ago. Although platinum jewellery maintained
its overall market share, the Japanese jewellery market
as a whole contracted. In addition, purchases of platinum
by manufacturers fell due to a further rise in the volume
of stock recycled, with the liquidation of inventories from
bankrupt companies contributing a significant amount of
metal to the market.
|
|
|
North
American purchases of platinum for jewellery were stable
in 2003 at 310,000 oz. Increased penetration of white gold
jewellery at the lower priced end of the market was offset
by increased platinum sales in higher price brackets of
both the fashion and bridal sectors. Growth in the UK platinum
jewellery market was the highlight in Europe, sales of platinum
jewellery remaining subdued in Germany and Italy. Over all,
platinum demand for jewellery manufacture in the region
increased by 6 per cent to 170,000 oz.
|
|
|
Total
industrial demand for platinum slipped marginally
lower in 2003 to 1.52 million oz; purchases of metal for
electrical applications climbed but demand for platinum
from the glass and chemical industries fell.
|
| |
|
|
|
|
|
|
A
strong recovery in sales of computers and other electronic goods led to
a rebound in shipments of hard disks in 2003, following two years of depressed
demand. This fed through to a rise in purchases of platinum, a key component
of the magnetic alloys used in hard disk manufacture. Demand for platinum
wire used in high temperature thermocouples also increased as production
of both steel and semiconductors rose.
|
|
|
In
the glass industry, the growth in manufacturing capacity for LCD glass
continued in Asia but the rate of new plant construction fell. In addition,
the high price of the metal led many glass companies to minimise their
inventories of platinum equipment and to defer purchases of new products.
The emphasis on reducing the amount of platinum held throughout the glass
industry led to an increase in the volume of metal sold back to platinum
refiners and fabricators.
|
|
|
After
two years of very good orders for platinum-based catalysts, demand from
the bulk chemicals industry slipped in 2003. Less new paraxylene manufacturing
capacity was planned and suppliers of catalysts to the silicones industry
had some success in thrifting the percentage of platinum used per catalyst.
Demand for platinum in other applications rose modestly: orders for catalysts
from the petroleum refining industry and consumption of platinum in biomedical
applications and turbine blades increased, but the market for platinum-gold
dental alloys fell (are action to the higher prices of both metals).
|
|
|
|
|
From
August 2003 onwards, Chinese users of platinum were able to purchase physical metal, effectively free of VAT, via the Shanghai Gold Exchange. |
|
|
|
| Outlook
|
| |
|
The
gap between platinum demand and supply narrowed in 2003 and the market
is set to move close to equilibrium in 2004 – it could even be in the
position of a small surplus. A substantial increase in supplies is forecast,
whereas growth in total demand is projected to be slight as increased
purchases by the auto industry are likely to be offset to a large extent
by weaker jewellery demand.
|
|
|
Chinese
jewellery demand may well fall for the second year in succession in 2004.
This will largely depend on how jewellery manufacturers and retailers
respond to movements in the price of platinum over the course of the year
and whether they can earn attractive profit margins.
|
|
|
Although
good volumes of metal were sold to jewellery manufacturers during the
first few days of January, ahead of the Chinese New Year holiday, demand
subsequently weakened when the price of the metal surged. Reports from
China suggested that some jewellery manufacturers were continuing to migrate
an increasing proportion of output to white gold, whilst a handful began
to experiment with the production of palladium jewellery. However, when
the price of platinum fell sharply in late April, Chinese purchases of
platinum jumped (see chart).
|
|
|
Little
change is projected for platinum purchases by jewellery manufacturers
in other regions in 2004. The Japanese market is forecast to stabilise,
after three years of very weak demand, as improving economic growth feeds
through to greater consumer confidence. In Europe and North America, platinum
jewellery is likely to face further pressure in lower price brackets from
white gold but this could be offset by higher sales in the bridal sector.
|
|
|
Purchases
of platinum by the global automotive industry are forecast to climb to
another record high in 2004, regardless of moves by some car manufacturers
to switch more heavily in favour of palladium in gasoline autocatalysts.
The increase in platinum demand will again be propelled by yet higher
sales of diesel cars in Europe as they gain further market share from
gasoline vehicles.
|
| |
 |
In
addition to higher diesel car sales, the strict limits on particulate
matter emissions set under the Euro IV regulations will necessitate
the introduction of catalysed diesel particulate filters (DPF) on
an increasing number of larger, heavier diesel car models. In addition,
although a majority of smaller diesel cars will be able to meet
Euro IV limits without the use of catalysed DPF, they are becoming
increasingly popular optional extras.
|
| |
|
|
As
in 2003, purchases of platinum by the US auto industry this year will
closely reflect the underlying level of consumption of the metal in autocatalysts.
This is expected to fall slightly as palladium-based catalysts replace
platinum-based formulations on some vehicles, a reaction to the large
premium that has developed between the price of platinum and that of palladium.
The impact on metal demand is likely to be more pronounced in 2005 as
catalyst changes take effect on an increasing proportion of new models.
|
|
|
Following
the one-off rise in Japanese autocatalyst purchases of platinum in 2003
due to the Tokyo heavy-duty diesel legislation, demand is forecast to
edge lower in 2004. The effect of this, however, should be outweighed
by greater use of the metal in China and India as light vehicle production
continues to expand rapidly. South Korean car output is also expected
to show good growth this year, after having been largely static in 2003.
|
|
|
Demand
for platinum in industrial applications is forecast to improve, supported
by rising shipments of hard disks in the electrical sector. Glass industry
demand is expected to increase, with most manufacturers having reduced
their metal holdings as far as possible in 2003, and consumption of platinumin
catalysts for the chemicals industry is also likely to trend upwards.
|
|
|
|
Total
supplies of platinum are projected to rise significantly faster than demand
this year. South African output is likely to exceed 5 million oz for the
first time as more metal flows from expansion projects at most of the
existing producers. Output from the Zimbabwean pgm mines will also continue
to grow,and North American shipments are expected to recover from last
year's fall.
|
|
|
During
the first quarter of 2004, the platinum price continued to be driven upwards,
with much of the momentum coming from fund buying of futures. The price
climbed rapidly from an opening fixing of $815 on the 2nd of January to
almost $870 in mid-month before dipping back towards $820 by early February
as Chinese buying fell away. The rally then resumed as funds reacted to
a substantial weakening of the US dollar and appreciation of the South
African rand by increasing their long positions in platinum. By the middle
of March the price had passed $900 and it peaked with a fixing of $937
on the 19th April.
|
|
|
From
the 20th of April onwards, however, funds suddenly turned net sellers
of precious and base metals as the US Federal Reserve hinted that US interest
rates were likely to rise in the relatively near future and the dollar
subsequently strengthened. As an initial burst of long liquidation pushed
the price downwards, additional sell orders were triggered. The rush to
close out positions accelerated and by the afternoon fixing on the 26th
of April the platinum price had plunged to $821.
|
|
In
conclusion, the platinum market is projected to be closer to balance in
2004, and supplies may even exceed demand for the first time since 1998.
To what extent this easing of the fundamentals affects the price of the
metal will depend on whether the late-April fund sell-off in platinum proves
to be a temporary phenomena or the start of a more permanent readjustment
of speculative portfolios. Our forecast price range for platinum for the
next six months is $780 to $920, the large spread reflecting the potential
for further volatility in the market. |
| |
|
|
| |
|
Palladium
Supply and Demand
'000
oz
|
|
2002
|
2003
|
| Supply |
|
|
| South
Africa |
2,160
|
2,310
|
| Russia |
1,930
|
2,950
|
| North
America |
990
|
940
|
| Others |
170
|
250
|
|
|
| Total
Supply |
5,250
|
6,450
|
|
|
| Demand |
|
|
|
|
|
| Autocatalyst
: |
gross |
3,050
|
3,460
|
|
recovery |
(370)
|
(410)
|
| Dental |
785
|
725
|
| Electronics |
760
|
895
|
| Other |
605
|
590
|
|
|
| Total
Demand |
4,830
|
5,260
|
| Movements
in Stocks |
(420)
|
(1,190)
|
|
|
|
·
|
Demand
for palladium recovered by 9 per cent in 2003 to 5.26 million
oz but this was still the second lowest total for a decade.
|
| |
|
|
·
|
Purchases
of palladium for use in autocatalysts jumped by 410,000
oz to 3.46 million oz as US car companies used far less
metal from inventories. Thrifting, however, reduced the
underlying consumption of the metal.
|
| |
|
|
·
|
The
electronics industry purchased 895,000 oz of palladium,
an increase of 18 per cent versus 2002 when use of stocks
depressed demand.
|
| |
|
|
·
|
The
use of palladium in dental alloys dropped by 8 per
cent to 725,000 oz in 2003. In Japan, the largest market,
demand slumped when the state subsidy for dental treatment
was cut.
|
|
|
|
|
·
|
Supplies
of palladium rebounded by 23 per cent to 6.45 million oz
in 2003. Unlike the previous year, Russian production was
fully sold and South African output expanded.
|
| |
|
|
·
|
With
supplies rising faster than demand, the palladium market
surplus widened to 1.19 million oz. The palladium price
consequently weakened, ending the year at $193, some $41
below the opening fixing in January despite growing fund
investment.
|
|
|
|
|
Global
demand for palladium increased by 430,000 oz in 2003 to 5.26 million
oz, primarily as a result of a sharprise in purchases by US auto
makers, who used far less metal from stocks than the year before.
Purchases of metal by electronic component manufacturers also
increased following depletion of inventories in 2002. In both
industries, however, the underlying use of the metal fell due
to thrifting.
|
|
|
|
Supplies
of palladium surged by 1.2 million oz in 2003 to reach 6.45 million
oz, closer to the level of global mine production than at any
time over the past decade. As ever, Russian shipments of palladium
were a major influence - Norilsk Nickel sold all of its production
in 2003 after having held back a substantial proportion of its
output the previous year.
|
|
|
The
increase in supplies of palladium outweighed the improvement in
demand, leading to a surplus of 1.19 million oz - this coming
on top of substantial surpluses in the previous two years. Consequently,
the palladium price was under pressure for much of 2003, despite
the fact that buying of futures by funds accelerated during the
second half of the year. Palladium ended the year at $193, 17.5
per cent below the opening fixing of $234 in January.
|
|
|
Purchases
of palladium by the autocatalyst industry recovered by
13 per cent in 2003, rising to 3.46 million oz. This was not due
to an increase in consumption of the metal in autocatalyst manufacture;
on the contrary, use of the metal fell for the third year in succession
as thrifting continued in all regions. However, because US car
companies used far less palladium from inventories than they had
in 2002, they purchased substantially more metal in the market
in 2003.
|
|
|
Purchases
of palladium for the manufacture of electronic components,
the second largest market for the metal in 2003, also increased,
jumping by 185,000 oz to 895,000 oz. Again, the rise was largely
because manufacturers had run down excess inventories during 2002
(both of palladium pastes and finished components), and so bought
substantially more metal in 2003. As in the auto industry, however,
the underlying use of palladium decreased year-on-year. The average
palladium content of conductive pastes was further reduced and
the miniaturisation of components continued.
|
|
|
Demand
for palladium in dental alloys dropped to 725,000 oz in
2003, a fall of 60,000 oz. Although the decline in the price of
palladium stimulated modest improvements in demand in the European
and North American markets, purchases of metal by the Japanese
dental sector slumped as a result of a cut in the government subsidy
for dental treatment.
|
|
|
Demand
for palladium in other applications weakened by 2.5 per
cent to 590,000 oz as purchases of the metal for use in both jewellery
alloys and chemical catalysts edged downwards.
|
|
|
Supplies
of palladium surged to 6.45 million oz in 2003, an increase of
1.2 million oz from the previous year. Shipments of palladium
from Russia jumped by more than 50 per cent to 2.95 million oz
as sales of metal by Norilsk Nickel closely reflected mine output,
the company having withheld a substantial volume of its production
from the market in 2002. Supplies of palladium from South Africa
and Zimbabwe also climbed, rising in line with expanding platinum
output and outweighing a fall in North American production.
|
|
|
The
palladium price staged a brief rally from $234 to just
over $270 during the first few weeks of 2003, as industrial demand
picked up following a typical year-end lull in December 2002.
However, from early February through to mid-April the price weakened,
sliding to a six year low of $144.
|
|
|
Strong
fund buying of palladium futures in August and September then
produced a second rally, which reached $232, but large offers
of physical metal and a lack of interest from industrial purchasers
had driven the palladium price back under $200 by the end of the
year. The price softened despite the fact that funds continued
to open substantial long futures positions.
|
|
|
By
the end of 2003, hedge funds and other investment funds had built
up a total net long futures position equivalent to over 500,000
oz of palladium on NYMEX, and were estimated to have accumulated
a similar sized net long position on TOCOM. On top of this, derivatives
contracts equivalent to an estimated 1.5 million oz or more of
palladium are believed to have been arranged through over-the-counter
deals.
|
|
|
The
speculative investment in palladium was part of a wider boom in
the commodities markets as a whole but ran counter to the supply
and demand fundamentals of the metal. Funds were partly attracted
to palladium due the conviction that the widening premium between
it and the price of platinum would become unsustainable, which
would encourage auto companies to increasingly favour the use
of palladium in gasoline autocatalysts. In addition, there was
an awareness that US auto industry stocks were likely to be depleted
during 2003. In short, having sunk to a low point of under $150,
the palladium price was seen as having considerably more upside
potential than downside risk.
|
| |
|
|
|
|
Supply
|
|
|
Russian
sales of palladium jumped by 53 per cent to 2.95 million
oz in 2003. In contrast to the previous year, when it withheld
a significant proportion of its production, Norilsk Nickel
sold its entire output in 2003. The majority of the metal
was shipped under contracts with end users, with the remainder
being sold via the spot market. Some palladium, estimated
to be less than 10 per cent of total Russian supplies, is
also believed to have been sold from central government
stocks last year. .
|
|
|
Norilsk's
deal to acquire a majority shareholding in Stillwater Mining
Co. was finalised in June. The 877,169 oz of palladium that
were used as part payment for its Stillwater holding were
exported from Russia to London before the end of March 2003
but as the metal was not sold to end users during 2003 it
does not appear in our supply figures for the year.
|
|
|
|
|
|
|
A
bill to amend the Russian state secrecy legislation covering
data on pgm reserves, production and sales (excluding those
made by the state) was passed by both houses of the Russian
parliament in October lastyear and was signed by President
Putin in November.
|
|
|
The
bill was due to enter into effect in February 2004 but it
now appears that further procedural hurdles must be overcome
before data on pgm production can be published.
|
|
|
Supplies
of palladium from South Africa grew by 7 per cent to
2.31 million oz in 2003 as pgm mining and processing expansions
gathered pace. The rate of increase in refined palladium output
was slightly higher than that of platinum as UG2 ore (which
generally has a higher palladium content than the Merensky
Reef) accounted for a greater percentage of the total volume
of ore mined. Sales of palladium from the two pgm mines in
Zimbabwe also climbed, inproportion to rising platinum
output.
|
|
|
Palladium
production in North America slipped by 50,000 oz to
940,000 oz in 2003. Output from Inco dropped sharply (in line
with the fall in the company's platinum production), and reduced
mining rates at the Stillwater mine led to a decrease in Stillwater
Mining's refined palladium output. These negative factors,
however, were largely offset by a jump in palladium output
at North American Palladium following the successful commissioning
of a new primary crusher.
|
| |
|
|
|
|
|
|
Demand
|
|
|
Purchases
of palladium by the autocatalyst industry last year
recovered from the slump of 2002, rising by 13 per cent
to 3.46 million oz, an increase of 410,000 oz.
|
|
|
The
improvement in purchases of palladium was due almost entirely
to a marked upturn in buying by the US auto industry. In
2002, US auto companies consumed well over 1 million oz
of palladium from inventories, and a significant volume
of metal was also sold back to the market. Although some
US auto makers continued to run down their remaining stocks
of palladium in 2003, they sourced a much greater proportion
of their metal requirements from the market, with buying
increasing during the second half of the year. Consequently,
North American purchases of palladium for autocatalysts
almost doubled from 640,000 oz in 2002 to 1.21 million oz
in 2003.
|
|
|
|
|
|
|
In
sharp contrast to the rise in the volume of metal purchased,
the amount of palladium consumed in the manufacture of autocatalysts
dropped for the third yearin succession as a number of leading
car companies continued to thrift catalyst loadings. This
was particularly true in North America, where use of the metal
fell by more than 20 per cent.
|
|
|
In
Europe, an 11 per cent drop in gasoline car production in
2003 had a knock-on effect on palladium demand; purchases
of the metal in the region fell by160,000 oz to 1.21 million
oz.
|
|
|
Japanese
purchases of palladium increased by 4 per cent to 540,000
oz in 2003 but the improvement was due to the fact that use
of stocks had depressed purchases in 2002, albeit on a much
smaller scale than in the USA.
|
|
|
With
palladium trading at a substantial and widening discount to
platinum in 2003, some car companies took steps to reduce
their platinum consumption by electing to switch to palladium-based
catalysts on new gasoline vehicle models. These decisions,
however, came too late to have any significant impact on palladium
demand in 2003.
|
|
|
Consumption
of palladium in the electronics industry in 2003 continued
to be adversely affected by thrifting, as well as by the ongoing
miniaturisation of components. Despite a sharp upturn in sales
of multi-layer ceramic capacitors (MLCC - the largest electronics
application for palladium) and an increase in palladium-based
MLCC manufacturing capacity in Asia, use of the metal dropped
by 7 per cent overall.
|
|
|
Nevertheless,
purchases of palladium jumped by 18 per cent year-on-year
to 895,000 oz. As in the auto industry, electronic component
manufacturers ran down excess inventories in 2002 (in this
case, of palladium pastes and finished components), depressing
purchases of palladium. With stocks having returned to normal
levels by 2003, demand for the metal rebounded.
|
|
|
Demand
for palladium for use in dental alloys dropped by 60,000
oz to 725,000 oz in 2003, a fall of 8 per cent. The reduction
in overall demand was a result of a slump in Japan, by far
the largest market for palladium-based dental alloys. A proportion
of the cost of the 20 per cent palladium alloy used in dentistry
in Japan is reimbursed under a state-run programme. However,
in April 2003, the percentage of the cost payable by patients
was increased from 20 to 30 percent (having risen from 10
to 20 per cent just four years earlier). This had an immediate
negative impact on the number of visits for dental treatment
made by the Japanese public. Palladium demand in Japan for
the year as a whole consequently fell by 20 per cent to 405,000
oz, the lowest level for more than a decade.
|
|
|
The
slide in the Japanese market greatly outweighed modest improvements
in demand in North America and Europe, where the fall in the
priceof palladium and rise in the price of gold made dental
alloys based on the former more competitive.
|
|
|
Purchases
of palladium for industrial and other markets edged
down by 15,000 oz to 590,000 oz in 2003. A fall in the use
of palladium-based catalysts by the bulk chemicals industry
out weighed a slight increase in demand for palladium catchment
gauze by nitric acid producers. Purchases of palladium for
use in jewellery alloys slipped in 2003 due to the contraction
of the Japanese platinum jewellery market, where the most
common platinum alloys contain between 5 and 15 per cent palladium.
In addition, Chinese jewellery manufacturers used less palladium
in white gold alloys, preferring less expensive metals such
as nickel, silver, tin and zinc.
|
|
|
|
|
|
Outlook
|
| |
|
|
|
The
volume of palladium recovered from scrapped autocatalysts climbed
by 11 per cent in 2003 to 410,000 oz, and is forecast to rise
even more rapidly in 2004. |
|
| |
|
The
first three and a half months of 2004 were marked by further heavy
buying of palladium futures by funds via the New York and Tokyo
futures exchanges and through over-the-counter deals. With offers
of physical metal easing from the high levels seen at the end of
2003, the speculative buying finally had a conspicuous impact on
the price of palladium, which climbed from $194 at the beginning
of January 2004 to hit a peak of $333 on the 13th of April.
|
|
|
Trading
sentiment towards the metal was boosted by an announcement by a
European autocatalyst company in early April that it had developed
a diesel car catalyst containing a proportion of palladium in place
of platinum. (Because of the particular operating environment of
diesel exhausts, diesel oxidation catalysts have to date contained
only platinum).
|
|
|
With
palladium trading at a substantial and widening discount to platinum
in 2003, some car companies took steps to reduce their platinum
consumption by electing to switch to palladium-based catalysts on
new gasoline vehicle models. These decisions, however, came too
late to have any significant impact on palladium demand in 2003.
|
|
|
However,
between the 20th and 22nd of April, the palladium price plunged,
hit by the long liquidation offund futures positions that was seen
across both the base and precious metals markets. The price dropped
from a morning fixing of $321 on the 20th to an afternoon fixing
of $257 on the 22nd of April, a fall of 20 per cent in three days.
The price of palladium subsequently recovered somewhat on the 23rd,
moving up to trade between $270 and $280.
|
|
|
Despite
the burst of long liquidation, hedge funds and other investors still
held very substantial long positions in palladium towards the end
of April 2004. The perception remained that, although the spread
between platinum and palladium had narrowed (closing from $613 on
the morning of the 20th to $549 on the afternoon of the 26th), it
was still unsustainably large and that the possible upside in palladium
was greater than the downside in platinum.
|
|
|
We
forecast a further increase in auto industry purchases of palladium
for use on gasoline vehicle autocatalysts in 2004, as stocks within
the US auto industry were largely depleted during 2003. In addition,
switching to greater use of palladium-based autocatalysts for gasoline
vehicles will begin to have agreater impact. Nevertheless, thrifting
will continue to reduce consumption of the metal in autocatalysts
in most major markets in 2004.
|
|
|
Demand
for palladium in dental alloys should also improve this year as
the number of dental treatments performed in the Japanese market
starts slowly to recover. In addition, North American demand for
palladium-based dental alloys is likely to rise moderately for the
third year in succession if the price of palladium remains significantly
below that of gold.
|
|
|
Purchases
of palladium for use in electronic applications are projected to
weaken slightly in 2004, despite further growth forecast for component
sales. Thrifting, miniaturisation and the rising recovery of palladium
from electronic scrap (particularly in Europe where new legislation
will come into effect in 2005) are expected to depress purchases
of the metal.
|
|
|
The
contraction of profit margins on platinum jewellery in China to
very low levels during the final quarter of 2003 and first quarter
of 2004 led a number of manufacturers to start producing palladium
jewellery. With much less competition than in the platinum jewellery
sector, participants were able to price in much higher profit margins.
|
|
|
We
estimate that in excess of 250,000 oz of palladium were purchased
by Chinese jewellery manufacturers during the first three months
of 2004 as stocks of palladium jewellery were built up. However,
by late April manufacturers and retailers were reported to be disappointed
with the initial level of sales, with suggestions that palladium
jewellery has not been well received by the public.
|
|
In
summary, we believe that palladium demand has the potential to rise
faster in 2004 than it did in 2003, driven by a higher level of purchasing
by the US auto industry as the impact of stock use finally dissipates. |
|
|
Demand
for palladium-based dental alloys should also improve, and an upturn
in the use of palladium catalysts by the chemicals industry is likely.
|
|
|
At
the same time, supplies of palladium are expected to rise substantially
in 2004: South African mine and plant expansions will deliver significantly
more metal this year; in the region of 400,000 oz of palladium is
due to be supplied under contract to the autocatalyst market from
the stocks held by Stillwater Mining; and recovery of palladium
from autocatalysts is projected to climb rapidly as heavily palladium-loaded
catalysts that were fitted to vehicles in the mid-1990s are recycled
in increasing volumes.
|
|
|
The
physical palladium market, therefore, will remain in substantial
surplus in 2004. As was demonstrated during the first four months
of the year, however, the price of palladium has become largely
divorced from the fundamentals of supply and demand. The weight
of speculative investment has been responsible for supporting the
price, and additional substantial buying by funds would have the
capacity to drive it back to recent highs. On the other hand, any
further concerted long liquidation of the still very large speculative
positions could lead to a sharp correction downwards. On balance,
we believe that palladium is likely to trade between $200 and $340
over the next six months.
|
| |
|
|
|
Other
Platinum Group Metals
|
| |
|
Rhodium
Supply and Demand
'000
oz
|
|
2002
|
2003
|
| Supply |
|
|
| South
Africa |
490
|
545
|
| Russia |
90
|
140
|
| North
America |
25
|
20
|
| Others |
10
|
15
|
|
|
| Total
Supply |
615
|
720
|
|
|
| Demand |
|
|
|
|
|
| Autocatalyst
: |
gross |
599
|
665
|
|
recovery |
(99)
|
(123)
|
| Chemical |
39
|
37
|
| Electronics |
6
|
6
|
| Glass |
37
|
31
|
| Other |
10
|
11
|
|
|
| Total
Demand |
592
|
627
|
| Movements
in Stocks |
23
|
93
|
| |
|
| Rhodium |
|
|
Net
purchases of rhodium rose by 6 per cent in 2003 to
627,000 oz. Overall use of the metal in autocatalysts
grew strongly as average rhodium levels increased
ahead of tighter emissions legislation. The level
of purchases made by automakers, however, was dampened
by the continued use of rhodium stocks. Demand from
the glass industry fell as the rate of capacity expansion
slowed and manufacturers reduced their overall pgm
holdings. Demand for rhodium-based chemical catalysts
softened.
|
|
|
| |
 |
|
Tha
manufacture of hard disks provided a growing market
for ruthenium in 2003.
|
| |
|
| Autocatalyst |
|
|
The
global auto industry purchased a total of 665,000
oz of rhodium in 2003, an increase of 11 per cent
(66,000 oz) compared with the year before. Actual
use of the metal in autocatalyst manufacture, however, was
higher than this as certain US auto companies continued
to deplete their rhodium inventories, consequently
cutting their purchasing requirements.
|
|
|
The
growth in use of rhodium in autocatalysts was greatest
in the USA and Japan. Tighter emissions regulations
are due to be introduced in each country (from 2004
onwards in the USA and in 2005 in Japan), and in both
cases the permissible levels of NOx emissions will
be cut substantially. Rhodium is a particularly effective
catalyst for the conversion of NOx to nitrogen and
so auto makers have increased average rhodium loading
levels in many instances.
|
| |
|
|
|
The
increase in average rhodium loading levels in the USA in 2003 was
also a result of the intensive platinum and palladium thrifting
programmes that US car companies adopted. In many catalyst systems
asmall rise in the rhodium content can help to maintain emissions
conversion rates when platinum or palladium loadings are reduced.
This is cost-effectiveas rhodium is used in much smaller proportions
than platinum and palladium. The advantage of using rhodium was reinforced
by the fall in the price of the metal from over $2,000 per oz in
2001 to $500 in 2003.
|
|
|
European
auto manufacturers also increased average gasoline vehicle rhodium
loading levels in 2003, both to meet the Euro IV emissions standards
that come into force from 2005 vehicle models onwards and to enable
thrifting of platinum and palladium. However, the effects of higher
loadings on rhodium demand was outweighed by a 7 per cent drop in
production of gasoline cars in 2003 the net result was that purchases
of rhodium by car companies weakened.
|
|
|
Demand
for rhodium in the Rest of the World increased by 8 per cent in
2003, primarily driven by the rapid expansion of car manufacturing
and sales in China and India.
|
|
|
The
recovery of rhodium from scrapped autocatalysts jumped by 24 per
cent to 123,000 oz in 2003. In common with platinum and palladium,
the largest rise was seen in the USA, where the volume of rhodium
recovered surged by 30 per cent. The rapid rise in the platinum
price helped to boost overall collection and recycling rates for
scrapped catalysts. In addition, the average rhodium content of
catalysts being recycled increased, a reflection of the move towards
higher rhodium loading levels that occurred during the mid-1990s
as new emissions legislation (targeting NOx in particular) was introduced.
|
|
|
Recovery
of rhodium in Europe also grew strongly in 2003, albeit from a much
smaller base. The increase was due to a rise in recovery rates,
driven by the imminent introduction of new recycling legislation,
as well as a similar rise in average rhodium loading levels as was
seen in the USA.
|
|
| Other
|
|
|
Purchases
of rhodium for use in chemical, glass and other applications weakened
by 7,000 oz to 85,000 oz in 2003. Demand for the metal for the manufacture
of catalysts for the chemicals industry and platinum alloys for
the glass industry fell, while use of rhodium in electrical and
other applications was little changed.
|
|
|
Demand
for rhodium from the chemical industry slipped by 5 per cent to
37,000 oz in 2003. The decline was largely due to a reduced rate
of capacity expansion for bulk chemicals such as oxo-alcohols and
the conversion of a number of acetic acid plants from rhodium-based
catalyst technology to iridium-ruthenium catalysts. Consumption
of rhodium in platinum alloys for use in nitric acid gauze softened.
|
|
|
Glass
manufacturers purchased approximately 31,000 oz of rhodium in 2003,
16 per cent less than the year before. Demand for rhodium was affected
by the high price of platinum, which led glass companies to minimise
their holding of rhodium-platinum alloy components, and to increase
their sales of scrap items back to refiners. In addition, although
new glass manufacturing capacity continued to be added in Asia, the
rate of expansion was lower than in 2002.
|
|
|
Ruthenium
Demand by Application
'000
oz
|
|
2002
|
2003
|
| Chemical |
101
|
141
|
| Electrochemical |
116
|
120
|
| Electronics |
140
|
157
|
| Other |
63
|
78
|
|
|
| Total
|
420
|
497
|
| |
|
| Ruthenium
& Iridium |
|
|
Purchases
of ruthenium surged by 18 per cent in 2003 to 497,000
oz. Use of the metal in chemical catalyst applications
jumped by 50,000 oz and demand from the electronics
industry also grew strongly. Demand for iridium also
recovered rising by 30 per cent to 103,000 oz. The
growth was driven by increased use of iridium-based
catalysts in the chemicals industry and a turn-around
in orders for iridium crucibles from the electronics
sector.
|
| |
|
Demand
for ruthenium for use in chemical process catalysts jumped by almost
40 per cent in 2003 to 141,000 oz. Much of the increase was driven
by expansion of acetic acid manufacturing capacity. The relatively
new Cativa® acetic acid manufacturing technology utilises an
iridium-ruthenium catalyst.Because the technology offers a number
of technical benefits, it was installed in several new plants and
was also retrofitted in some existing facilities. Demand for ruthenium-based
products used in proprietary chemical applications also increased
in 2003.
|
|
|
Consumption
of ruthenium in resistors and other electronic components improved
by 12 per cent last year, rising to 157,000 oz. In 2002 an overhang
of component inventories and excess stocks of ruthenium pastes dampened
purchases of the metal but these had been depleted by 2003. During
the year demand for consumer and automotive electronics increased
significantly, driving a rebound in component manufacturing rates.
|
|
|
Electronic
demand for ruthenium also benefited from growing use of the metal
in hard disk drives. The addition of a very thin layer of ruthenium
to the magnetic coating of hard disks can substantially increase
data storage density. As the technology began to penetrate the hard
disk sector in 2003, demand for ruthenium sputtering targets increased.
|
|
|
Electrochemical
demand for ruthenium increased moderately in 2003 to 120,000 oz.
Ruthenium is used as an electrode coating in older chlor-alkali
plants utilising the mercury or diaphragm process. Electrode recoating
programmes at several of these large plants boosted ruthenium demand
last year. Over the longerterm, however, ruthenium demand is expected
to weaken as more plants switch to modern membrane technology that
uses ruthenium-iridium electrode coatings rather than ruthenium
only.
|
|
|
Demand
for ruthenium-titanium alloys used in the manufacture of corrosion-resistant
pipes was little changed in 2003, and consumption of ruthenium in
jewellery alloys was also broadly stable.
|
|
|
As
with ruthenium, the spread of the Cativa® acetic acid manufacturing
technology boosted demand for iridium in 2003, total chemical industry
demand doubling to 20,000 oz. Electrochemical demand for iridium,
however, was unchanged as electrode recoating programmes at plants
using membrane technology progressed steadily.
|
|
|
Consumption
of iridium in the manufacture of high performance spark plugs grew
but the sector remains small in volume terms. Use of the metal in
most other applications, such as jewellery alloys and cathodic protection,
was broadly flat.
|
| |
|
|
Iridium
Demand by Application
'000
oz
|
|
2002
|
2003
|
| Chemical |
10
|
20
|
| Electrochemical |
23
|
23
|
| Electronics |
21
|
32
|
| Other |
25
|
28
|
|
|
| Total
|
79
|
103
|
|
|
| Other
PGM Supplies |
|
|
Supplies
of rhodium climbed by 17 per cent in 2003 to 720,000 oz.
South African shipments of metal expanded by more than 10
per cent to 545,000 oz,reflecting both increased mine production
of pgm ore, plus an increase in the proportion of UG2 ore
mined. The average rhodium grade of UG2 istypically double
that of the Merensky Reef. Russian sales of rhodium also
grew substantially in 2003, rising by 50,000 oz to an estimated
140,000 oz.
|
| |
|
|
The
increase in availability of rhodium outstripped the rise in demand
for the metal and the market moved further into surplus during the
year. This was reflected in the price, which fell from a peak of
$650 in January to $500 by the middle of the year.
|
|
|
The
situation was similar for both iridium and ruthenium; rising supplies
from South Africa were more than sufficient to meet improved demand
for the two metals.
|
|
| |
|
|
