Investors, autos to fuel platinum deficit in 2019 – Johnson Matthey

Platinum is now starting to catch up to its peers. (Stock image)

Soaring investment demand will create platinum shortages in 2019, while the palladium market will see a deficit for the eighth consecutive year due to robust demand from the auto sector, specialist materials firm Johnson Matthey said.

In a report produced at the start of Platinum Week in London, Johnson Matthey forecast a 127,000-ounce platinum shortfall this year, after surpluses of 372,000 and 44,000 ounces in 2018 and 2017 respectively.

Platinum prices hit 10-year lows below $800 an ounce last August and are currently around $850 an ounce.

Prices have been under pressure for several years, a process accelerated by Volkswagen’s emissions-rigging scandal in 2015 which hit demand for diesel engines

Prices have been under pressure for several years, a process accelerated by Volkswagen’s emissions-rigging scandal in 2015 which hit demand for diesel engines.

Diesel models use a heavier loading of platinum in their catalytic converters, while gasoline engines use more palladium.

“Since the ETFs (exchange-traded funds) were launched in 2007 there have been many years when platinum investment has been the swing factor,” Rupen Raithatha, a research manager at Johnson Matthey told Reuters.

“In the context of platinum as a substitute for palladium in gasoline catalysts, investors see platinum as undervalued. Any material move away from palladium is likely to be two to three years away at a minimum.”

Data from Refinitiv shows ETF holdings of platinum rose 460,000 ounces to 2.486 million ounces in the first quarter.

Johnson Matthey, an autocatalyst manufacturer, expects platinum consumption in heavy-duty vehicles to increase sharply, with strict China VI emissions legislation due to be implemented in some provinces and cities starting in July 2019.

It expects autocatalyst demand to rise 2.5 percent this year to 3.128 million ounces, about half of global net demand adjusted for recycling of 6.316 million ounces.

Supply is estimated at 6.189 million ounces, up more than one percent from 2018.

Platinum supplies from South Africa, the world’s largest producer accounting for about 75 percent of the global total, could rise slightly this year “if producers can clear processing backlogs”, JM said in the report.

“However, there is some downside risk due to the potential for disruption from electricity shortages or strikes.”

Meanwhile, the gap between palladium demand and supply will jump to 809,000 ounces. The deficit was 121,000 ounces last year, and 875,000 ounces in 2017, JM said.

“Between 2012 and 2018, the cumulative deficit was 5 million ounces, drawn from above-ground stocks,” Raithatha said. “Prior to 2012, there were annual sales of Soviet stocks, (but) we haven’t seen any significant sales in that area since 2012/2013.”

Palladium prices, now around $1,288 an ounce, hit record highs above $1,600 an ounce in March as the market fretted about a larger shortfall this year.

Palladium ETF sales helped balance the market in 2018 . Refinitiv data shows palladium in ETFs is currently at 696,247 ounces, less than the amount needed to bridge the gap.

JM expects palladium use in autocatalysts to jump 9 percent this year to 9.496 million ounces, about 85 percent of total global demand.

China 6 emissions legislation will be enforced nationally in 2020, but some provinces and cities will introduce the new standards in July this year under the ‘Blue Sky Protection Plan’, JM said.

(By Pratima Desai; Editing by Veronica Brown and Jan Harvey)