Johnson Matthey: Expect Platinum Surplus in 2018

Johnson Matthey (LSE:JMAT) says the platinum market is on track to record another surplus in 2018, while palladium will see a deficit this year.

Palladium was the top-performing precious metal in 2017, rising 56 percent and reaching a record high of $1,138 per ounce last month.

The price gap between the two metals has been narrowing, with palladium at $1,004.50 and platinum at $1,001.20 per ounce as of Tuesday (February 14).

The platinum market was in oversupply by 110,000 ounces in 2017, with primary supply down 2 percent, or 6 million ounces. Demand for platinum fell 7 percent last year on waning autocatalyst demand, plus a slowdown in Japanese investment and Chinese jewelry buying.

Johnson Matthey notes that platinum demand from autocatalysts will erode “due to a fall in average loadings on European diesels.” Meanwhile, demand for platinum in jewelry fabrication in China is forecast to fall for a fifth consecutive year.

Growth in industrial applications is anticipated to offset declining demand in other areas. Glass manufacturers are expected to purchase large amounts of the metal for new LCD and fiberglass facilities, while chemical demand is set to remain at historically high levels.

Recycling growth

“Overall, before accounting for investment, we expect global platinum consumption to rise slightly. However, this will be matched by a modest increase in combined primary and secondary supplies, mainly due to rising recoveries from autocatalyst scrap,” the firm says in its February report.

Johnson Matthey forecasts further growth in the “volume of spent autocatalyst collected and processed” from North American and European markets. However, jewelry recycling in China is expected to fall even as gross jewelry recycling remains above normal levels. The firm predicts that combined primary and secondary supplies could rise by 2 to 3 percent.

Stable mine supply

The impact of mine closures in South Africa is expected to be offset as unprocessed inventory that accumulated last year is refined, leaving primary global platinum supply to rise modestly in 2018.

Johnson Matthey estimates that the release of metal from stocks of ore or works in progress could add as much as 150,000 ounces of platinum to refined output from the country, coming mostly from Impala Platinum (JSE:IMP) and Northam Platinum (JSE:NHM).

These gains are expected to be partially offset by mine closures that took place in South Africa in 2017. In North America, Johnson Matthey believes that Sibanye-Stillwater’s (JSE:SGL) Blitz expansion project “should make a meaningful contribution to supplies this year,” but added that platinum-group metals grades at the Sudbury nickel mine are on the decline.

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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.