Platinum market shifts to deficit, first time in 7 years – GFMS

According to the consultancy, the trend reversal was almost completely the result of supply side factors and is likely to be similarly influenced in 2013.

Labour disruptions in South Africa pushed the platinum market into a narrow deficit in 2012, for the first time in seven years, Thomson Reuters GFMS said on Thursday.

Speaking at the launch of the group’s Platinum & Palladium Survey in Johannesburg, Thomson Reuters GFMS, Research Director for Mining, William Tankard, said the market swung to a marginal deficit of 83,000 ounces in 2012.

According to GFMS, this trend reversal was “almost completely attributable to supply side factors”. The report indicates that all three major sources of refined metal contracted last year. Mining output fell 10%, recycling of autocatalysts slipped 9% and scrap jewellery sales dropped 19%.

But, the consultancy points out, “Of the three, in absolute terms, the withdrawal of supply overwhelmingly originated from the mining industry, where the 10% drop translated to 0.62 Moz (19.1 tonnes) less metal from this sector, largely as a result of protracted episodes of illegal strike action in the South African industry that drove a 12% drop in refined mine production.”

And, it doesn’t look as though things are looking any better this year. Said Tankard, “The pieces are in place for further labour unrest as we move into the wage negotiation period in South Africa, and shaft restructuring plans are under discussion with government. Should these two factors be realised we expect South African platinum output will fail to rebound this year even after a calamitous 2012.”

Despite this, however, it is important to note that, as a result of the significant run of overall surpluses, above ground stocks of bullion remain substantial, with GFMS estimating them at more than 4.3 million ounces. .

On the other side of the equation, demand rose 1% over the course of the year, but, was pulled down by a 4% contraction in autocatalyst demand, which fell on the back of weakness in the platinum-heavy European market, “coupled with the twin draw of substitution (to palladium in diesel applications) and thrifting the intensity of metal use,” the report said.

During the period, jewellery demand rose 9%, boosted in the main by China, while usage in the petroleum industry rose by 1 fifth.

Looking ahead, Tankard said: “The platinum price this year remains in the balance and will very much be determined by supply side factors again in 2013. Should restructuring take place and supply be kept off the table we would expect a reasonably positive investor sentiment to take on a small surplus and drive a pick-up in prices through the year, to average almost $1600.”

But, he warned, “With more than seven months’ demand cover, or one year of South African mine production sitting as stock in the terminal markets, there is plenty of metal about. The demand outlook, particularly in Europe, remains fragile and platinum supply therefore needs to be kept reined in for prices to strengthen and adequately compensate continued long term investment for an industry with unrelenting cost inflation.”



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