Outlook turns bullish for platinum on supply deficit

This is some good news for market participants who have been wondering about the outlook for the precious metals complex next year.

In its Platinum 2013 interim review released this week, Johnson Matthey has come up with something to cheer, projecting a bullish outlook for platinum.

JM has forecast that platinum will average $1,465 an ounce over the next six months and trade within a broad range between $1,360 and $1,580.

The metal has been trading at around $1,430 in the London market this week.

Importantly, while platinum’s own fundamentals are healthy, gold’s price weakness seems to be rubbing off on it. Yet, the price differential with gold has widened to about $150/oz.

Next year, the market will be in a significant deficit for a third consecutive year, JM forecast.

Supply disruptions

From a demand perspective, the jewellery sector is expected to project a healthy trend, while auto-catalyst demand expansion would be modest given the pace of auto sales and implementation of emission norms. However, China’s strong platinum imports in recent months are set to continue.

From a supply perspective, wage negotiations in the world’s dominant producer South Africa have the potential to disrupt supplies. At the same time, abundant stocks may limit the upside.

JM believes the market will be in a state of deficit including investment demand for the first time since 2005.

But it has cautioned that this might not translate into higher prices automatically due to sufficient above-ground stocks.

Palladium outlook

On palladium, the interim review report is less sanguine.

Over the next six months, price is forecast to average $760/oz and trade within from $680 to $815. Given the current price of palladium at $748, the outlook seems less bullish.

South Africa and Russia are world’s top two suppliers of the precious metal.

In 2014, JM sees flat mine supplies and sharp decline in primary stocks.

At the same time, recycling will increase, especially in China as new legislation takes effect to regulate emissions.

Whether South Africa’s launch of a new ETF will change the sentiment remains to be seen.

Balance sheet

According to some projections, primary supply of platinum would be about 5.7 million ounces while total supply is forecast at 7.7 million ounces.

Demand is projected at 7.9 million ounces, resulting in a deficit.

In palladium, total supply is projected at 9.1 million ounces and demand at 9.8 million ounces.

JM is a London-headquartered speciality chemicals company with a strong precious metals products division and operating in 30 countries.

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