The Changing Landscape for Platinum (Part 2)

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Read the first part of this article.

Supported in recent years by Beijing’s encouragement to buy precious metals, a rising GDP is encouraging the population to divert a proportion of their savings into precious metals, similar in ways to India’s long-standing cultural affinity for gold as a store of personal and family wealth.

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Both platinum imports and daily volumes on the Shanghai Gold Exchange have risen strongly in the last two years, illustrating the strength of domestic demand.

platinum demand graph

Source: ETF Securities

Platinum 2

Source: ETF Securities

We have to be careful to take ETF Securities’ stats and apply caution to their conclusions.

The numbers may be accurate, but ETFS is naturally bullish on demand for obvious reasons. The total demand for platinum has been stagnant at around 8 million ounces a year since 2005, with the exception of the recession year in 2009, when demand dipped to 6.8 million ounces.

In 2007, total jewelry demand accounted for about 26% of platinum demand, compared to 51% for auto. In 2013, total jewelry demand is on track to account for over 32% of total platinum demand, compared to about 39% for auto catalysts.

The European car sector is recovering and showing some strength in the UK and Germany, if still weak in France and Italy. Auto-catalyst demand is expected to pick up next year, and jewelry demand is expected to continue to rise strongly. Even with the growing use of palladium in combination with platinum in catalysts mitigating the benefits of a rise in auto construction support would be taken from rising auto sales.

Platinum demand by region

Source: ETF Securities

The caveat is that jewelry demand in China appears price-sensitive; if supply constraints in South Africa were to boost the price, say, demand would slow in China, but with miners holding an estimated 1+ month of supply, even a widening strike is unlikely to constrain metal supply significantly.

ETF Securities makes one final observation worth noting: with the platinum price now around 25% below its estimated all-in cost of production, and China demand expected to rise further in 2014, the platinum price remains well-supported for next year and beyond.

Don’t forget to read October 2013 MMI analysis before November’s full report comes out next week!

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