Johnson Matthey Talks Up Platinum Prices

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Beyond fears over supply, the market also appears to have moved based on reports of increased demand. In particular the demand appears to have come from a new physically backed Platinum ETF called Absa based in South Africa that bought about 365,000 ounces of platinum in May (equivalent to 4.5% of annual demand). Meanwhile, in the US, auto sales have grown driven by strong sales of light trucks, up more than 10% from the beginning of the year to March 31. This has spurred an increased demand for catalytic converters for heavy diesels up by 7%.

In Asia, China has bought more platinum both for automotive use and more interestingly for jewelry. Jewelry sales in turn have risen due to  lower prevailing prices this year. This has had the effect of boosting Chinese imports from 8 tons in March of last year to 9.1 tons in March of this year.

Only Europe has failed to add to the demand side of the equation with car demand expected to fall a few percentage points lower this year than compared to last, according to Johnson Matthey. In addition, demand has dropped from chemicals and glass-making as well. Longer term, the outlook appears encouraging with demand to increase in 2014/15 with the new Euro VI legislation [to tighten emission controls] and greater demand for chemicals catalysts in China,” according to Martin Dunwoodie, analyst at Deutsche Bank.

Certainly most analysts seem to agree that a platinum price floor exists of around $1450/oz but whether it has the legs to challenge $1600 seems uncertain. Johnson Matthey talks of platinum going as high as $1750/oz but then as a major platinum player, we’d expect that.

Supply still exceeds demand this year as it did last by some 430,000 ounces or 12 metric tons. Chinese jewelry and global automotive demand would have to grow substantially in the second half of the year to bridge such a gap. Alternatively, strikes or civil unrest in South Africa would have to result in a prolonged shutdown of production. Either remains possible and of course markets move by anticipation rather than reality, so the price could continue up without any of those outcomes coming to pass. Personally though we think platinum has done well getting to its current price. The $1600’s remain a possibility on the current wave of optimism but $1700+?

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