The Hindu Business Line : Platinum-palladium price gap to narrow: GFMS study

THE prevailing price differential between platinum and palladium will narrow and the consuming markets are already responding to the massive premium that platinum currently commands over palladium, GFMS Ltd has forecast in its Platinum and Palladium Survey 2004, which was released on Thursday.

Stating that both metals were in fundamental deficit and that consumers were adopting a flexible approach, the London-based precious metals consultancy said that because of their similar physical and chemical characteristics, the two metals were partially interchangeable in some of their end-uses, notably in automotive emission control catalysts.

The price swing between the two has exceeded $1,000 an ounce ever since the peak of palladium's price spike in 2001 and consumers are rapidly becoming more flexible in their ability to switch between, or mix, the two.

Despite expanding mine output, platinum's deficit has been growing year-on-year since 1999 because of demand for emission control catalysts and growth in China's jewellery industry.

If the planned increase in mine supply materialises, it may erode platinum's deficit; if not, price strength will choke demand with jewellery being the most likely casualty, the survey said.

Palladium's deficit has eased considerably since 1999 and 2000 because of lower demand, higher mine output and inventory drawdown by Russia.

Asserting there was no firm evidence of availability of fresh palladium inventory in the future, GFMS said that palladium prices would also rise if consumer needs were not met by expanded mine output and scrapped emission control catalyst supply.

On the demand side, total fabrication of platinum increased by just over one per cent in 2003, while palladium demand rose by almost two per cent.

Specifically, platinum demand in jewellery fell by nine per cent while the use of palladium jewellery rose by eight per cent.

Global mine production of platinum increased by almost one per cent to 5.92 million ounces, while palladium production fell by one per cent.