Strong fundamentals positive for platinum group metals – CPM

Investors are expected to remain attracted to platinum in 2010 because of potential price appreciation based on the metal’s tight supply, increasing fabrication use and investor demand.

Author: Dorothy Kosich
Posted:  Tuesday , 29 Jun 2010

RENO, NV - 

A combination of constrained supplies, rising fabrication and increased investor interest in PGMs is expected to drive these metals prices higher in the near future, New York metals consultants CPM said in a presentation Tuesday.

In CPM’s Platinum Group Metals Yearbook 2010, the analysts expect platinum demand to benefit from the global economic recovery this year.

Investors purchasing platinum for its safe haven attributions are likely to be outnumbered by those purchasing the metal for its tight market balance. Nevertheless, CPM said, “Investors are expected to remain attracted to platinum because of the potential for price appreciation based on the metal’s positive supply and demand fundamentals.”

Platinum ETF investment holdings are forecast to continue to rise this year.

“Given the forecast for strong investment demand during 2010, there is an expectation that there will not be sufficient metal coming into the market from newly refined supplies to meet both rising fabrication demand as well as robust investment demand,” CPM suggested. “This scenario suggests an extremely tight market, which would push platinum prices higher.”

CPM forecasts that global platinum mine production may rise 5.6% this year to 6,658,461 ounces. 

The largest platinum producer South Africa “is confronted with certain resource constraints which are not expected to be resolved in the near future and are expected to inhibit supply from the country, irrespective of how high metals prices rise.”

New mine production coming on line is expected to boost South African output to 5,112,174 ounces this year, up from 4,845,000 platinum ounces mined in South Africa in 2009.

Platinum production from Russia is forecast to increase from 831,000 ounce in 2009 to 890,000 ounces this year, according to the yearbook.

CPM projects that total newly refined platinum supplies will rise 5.5% from 7,043,000 ounces last year to 7,468,461 ounces this year.

Secondary platinum recovery, which fell 25% last year to 750,000 ounces, is forecast to increase 8% this year to 810,000 ounces due to the present improvement in platinum prices and pick up in the auto sector.

“Platinum fabrication demand is forecast to rise at a healthy pace during 2010,” CPM advised, “driven largely by an improvement in global economic activity and restocking of metal by users.”

Total platinum fabrication demand dropped 4.1% to 6,584,000 ounces in 2009. The yearbook projects fabrication demand will recover 8.4% to 7,137,000 ounces this year.  However, CPM predicts the growth in demand for platinum jewelry during 2010 “is forecast to be relatively weak compared to 2009.”

“The declining platinum price volatility, at least during the first three months of 2010, coupled with an improving economic environment that could boost discretionary spending among consumers, are both factors that could supply platinum jewelry demand,” CPM suggested.

In their analysis, CPM noted investor interest in platinum futures remained high in 2009 and early this year. Commodity funds and other institutional investors held large net long positions throughout last year.

Combined trading volumes of platinum declined 30.4% to 101.7 million ounces on Nymex and Tocom last year.

Unfortunately, there were no Platinum Eagle coin sales by the U.S. Mint in 2009 because the Mint had run out of coins due to strong investor demand. “The Mint plans to produce these coins sometime around July or August this year,” CPM advised.

PALLADIUM

Total palladium supply reached 7.6 million ounces last year, the third consecutive year that total palladium supply declined.  This year total supply is expected to increase 8.2% to 8,265,706 ounces, according to CPM’s forecasts.

However, CPM cautioned, “The increase in supply is not expected to be enough to meet the needs of both fabricators and investors.”

Meanwhile, total palladium fabrication demand dropped 7.5% last year to 7,170,500 ounces. Total fabrication demand is forecast to increase what CPM called “a healthy 8.2% pace in 2010, reaching 7,795,000 ounces.”

In their analysis, CPM said palladium investment demand rose sharply last year and in the first quarter of 2010 due to several factors including the expectations of a tight supply/demand balance in the palladium market. The launch of a new palladium backed investment products and the continued increase in investor interest in commodities as an asset class also generated palladium investment demand.

Trading volume for palladium on both Nymex and Tocom was a combined 45.5 million ounces last year, down 44.1% from 81.4 million ounces traded in 2008.  Combined inventories of palladium in both Nymex and Tocom vaults were up 46.1% for a total of 673,735 ounces at the end of last year.

RHODIUM

Newly refined total rhodium supply was up 4% at 1,006,217 ounces in 2009. Total supply of newly refined rhodium is projected by CPM to increase 4.8% to 1,054,820 ounces this year.

The growth rate in South African rhodium production has been greater than the growth rates of South African platinum and palladium production, CPM observed. “This no doubt reflects the increased focus on the rhodium-rich UG2 ore body and efforts to increase the recovery of rhodium from all ore processing, given the tight market conditions and high prices for this metal.”

Nearly 85% of mined rhodium supply comes from South Africa. “Due to this concentration, total rhodium supply is sensitive to the various factors pertinent to South African mining,” CPM said.

“Rhodium mine production in South Africa will be negatively affected by the tightness in and any potential future shortfall of South African electricity supply, as well as labor issues. Rhodium supplies meanwhile will be positively affected, to some extent, by the ongoing reliance on UG2 ore in PGM mining.”

Overall South African mine production of rhodium is forecast to total 754,061 ounces this year, up 4.45% from 2009.

Rhodium production in Russia is expected to increase to 87,000 ounces this year, according to the yearbook.

CPM also forecasts that total rhodium fabrication demand may rise 11% to 992,273 ounces this year.

To order the CPM Group’s Platinum Group Metals Yearbook 2010, go to www.cpmgroup.com