Platinum Shortage Widens With Palladium on Supply to Car Demand

May 20, 2014 11:51 am ET

May 20 (Bloomberg) -- Supply shortages for platinum and palladium will be the largest in more than three decades this year on stronger demand from car companies and restricted supplies, Johnson Matthey Plc said.

Platinum consumption will beat supply by 1.22 million ounces, compared with 940,000 ounces in 2013, London-based Johnson Matthey said in its platinum-group metals report. Palladium’s deficit will expand to 1.61 million ounces, from 371,000 ounces last year. They would be the biggest shortfalls ever, based on data going back to 1975 for platinum and 1980 for palladium on the company’s website.

Platinum has gained this year as more than 70,000 workers went on strike from January in South Africa, the largest producer of the metal and second-biggest for palladium. Demand from auto makers, which use the metals in pollution-control devices, helped keep the materials in shortages since 2012. Palladium reached the highest since 2011 this month, partly as western nations threatened top producer Russia with sanctions.

“Supply-side issues are common to both platinum and palladium,” said Peter Duncan, general manager, market research at Johnson Matthey. “We do expect auto demand to keep rising. In the medium term, this is mainly to do with emissions legislation in the case of platinum, and mainly growth in vehicle production in the case of palladium.”

Johnson Matthey released its last platinum review report in November and said it will now supply similar data through Bloomberg terminals and on its website that will be updated in May and November. Its South African output forecasts were based on the assumption that the strike would end by late April, it said.

Price Gains

Platinum for immediate delivery rose 7.6 percent to $1,474.75 an ounce in London this year, according to Bloomberg generic pricing. It reached $1,486 on May 14, the highest since March 7. Palladium advanced 15 percent to $821 an ounce since the end of December, touching $829.25 on May 14, the highest since August 2011.

Gross platinum demand rose 9.1 percent to 8.77 million ounces last year as record jewelry usage and higher industrial consumption outweighed a 2.2 percent drop in auto demand, according to the company, which makes about one in three of the world’s catalytic converters. The deficit almost tripled last year. Supply gained 2.9 percent as South African output increased.

South Africa

Producers in the nation added to stockpiles in anticipation of strikes this year, Johnson Matthey said. Members of the Association of Mineworkers and Construction Union downed tools on Jan. 23 and Lonmin Plc, Anglo American Platinum Ltd. and Impala Platinum Holdings Ltd. took their offer directly to miners earlier this month.

Car companies’ palladium usage climbed 3.6 percent to a record 6.91 million ounces in 2013, Johnson Matthey data show. The deficit still narrowed 63 percent to 371,000 ounces as gross demand dipped 4.6 percent to 9.44 million ounces on lower jewelry, dental and electrical demand. Supply fell 0.4 percent.

“For palladium, other industrial demand is likely to continue to soften as base metals continue to erode palladium’s use in the electronics and dental sectors,” Duncan said. “Other industrial demand for platinum remains strong and is growing, underpinned by strong demand in the chemicals sector.”

Russia accounted for about 41 percent of palladium supply last year. The U.S. and the European Union have imposed sanctions on Russian companies and people in President Vladimir Putin’s inner circle and vowed to tighten them if he disrupts Ukraine’s May 25 presidential election. Johnson Matthey doesn’t expect any sales from Russian state stockpiles this year.

ETP Holdings

Holdings in exchange-traded products backed by both metals reached records this month, data compiled by Bloomberg show. Platinum investment almost doubled to 871,000 ounces last year, while investors sold palladium, according to Johnson Matthey.

Platinum recycling slipped 2.1 percent to 2.01 million ounces last year as palladium scrap sales gained 9.2 percent to 2.54 million ounces.

Rhodium’s shortage will widen to 60,000 ounces, the most since 2005, from 28,000 ounces in 2013, the company expects. Gross demand for the metal, mainly used in catalytic converters and also in the chemical and glass industries, gained 3.9 percent to 1.01 million ounces last year. It rose 5.6 percent to $1,030 an ounce this year, according to Johnson Matthey prices on Bloomberg.

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