COMMODITIES ● PRECIOUS METALS
9 July 2018Platinum 3
Executive summary 3
Demand trends: Autos 5
Demand trends: industry 8
Demand trends: Jewelry 10
Demand trends: Investment demand
a golden opportunity 12
Supply trends: South Africa is key 14
Palladium 16
Executive summary 16
Demand trends: Autos 19
Demand trends: Industry 20
Demand trends: investments 21
Supply trends 22
Disclosure appendix 24
Disclaimer 26
ContentsCOMMODITIES ● PRECIOUS METALS
9 July 2018
Executive summary
Down, but not out
Platinum prices have been notably weak for many months. After sliding below USD900/oz to
USD868/oz in mid-December 2017, the market put in a brisk, but brief recovery above
USD1,000/oz to a year-to-date high of USD1,027/oz set in late-January 2018. Prices were
supported by expectations of increased physical demand and a softer USD. The recovery proved
short-lived, however. For most of this year prices have weakened, skidding back below USD900/oz
and further below USD850/oz by late-June. Platinum has been undermined by moderating auto
offtake, including growing concerns over future diesel vehicle demand, sluggish jewelry
consumption and ample available near-term supply. Negative investor sentiment has been
reinforced by a strong USD, tightening Federal Reserve policies, mixed strength of other hard
assets and lower gold prices. More recently, broader concerns of global trade frictions have also
weighed on platinum prices. In the process, platinum’s discount to gold and its sister metal,
palladium, remains historically wide. Both provide clear evidence of a bear market for platinum.
Some of the positive factors we identified in March (see Platinum Group Metals: New forecasts:
Lowering platinum, raising palladium, 8 March 2018), such as limited mine supply and good
industrial demand, remain in place, but have so far failed to support prices. Meanwhile,
investment demand for platinum has been notably weak, with much of investor interest in the
PGMs going into palladium. That said, we view prices as oversold. And while platinum’s
fundamentals may not be dynamic, we do not believe they are accurately reflected by prices
below USD900/oz. More stable gold prices may eventually feed into platinum and help pull up
prices. Mine supply is likely to edge lower, while industrial demand is robust even if auto offtake
remains sluggish. Jewelry demand looks to be bottoming out. We expect a recovery in prices by
the end of 2018, even accepting likely more modest supply/demand surpluses than the wide
deficits of previous years.
We lower our average 2018, 2019, and long-term price forecasts to USD950/oz, USD1,095/oz,
and USD1,290/oz, respectively, from USD1,010/oz, USD1,130/oz, and USD1,335/oz. We keep
our 2020 forecast unchanged at USD1,250/oz. We anticipate a USD1,050-790/oz trading
range for 2018.
Platinum
Platinum has weakened on investor liquidation and trade worries;
market looks oversold; we expect prices to average USD950/oz in 2018
Investor sentiment may recover on equity volatility; concerns over weak
auto demand may be exaggerated; jewelry purchases may increase
Mine output limited as capex cuts and low prices limit South African
output; auto recycling may increase supply, industrial demand strong
COMMODITIES ● PRECIOUS METALS
9 July 2018Platinum demand highlights: Eroding, but we look for recovery
Investment demand: We see limited scope for further investor liquidation and anticipate an
increase in net long Comex positions, after heavy declines. Historically low net long positions
make a short-covering rally likely. There is also room for builds in the ETFs, as value investors
are attracted to platinum by low prices. Bar demand, although lower than the stellar 2015 and
2016 period that saw heavy Japanese purchases, looks stable and is likely to rise.
Auto demand: Global auto growth should be positive for this year and 2019, but noticeably
less robust than in recent years, according to HSBC’s auto analyst forecasts. Also, diesel
vehicles in the key European auto market – which typically have heavy platinum loadings –
are likely to continue losing market share to gasoline vehicles and be increasingly
confronted by growth in hybrid and electric vehicles. Declining platinum demand should be
partially offset by greater demand for heavy duty vehicles and tighter regulations globally,
which should aid platinum auto usage over time. While concerns over the market-share
erosion of diesel vehicles are valid, they may also be somewhat exaggerated. It is possible
that given platinum’s lower price that some automakers will examine using more platinum at
the margin in place of other PGMs.
Industrial demand: Strong demand from chemical, oil refining, electronic and glass
manufacturers, boosted by China’s expansion in many of these industries, is likely to
maintain overall platinum industrial consumption and help offset sluggish auto demand.
Jewelry demand: Platinum jewelry demand has been weak due to contractions in purchases
in China. Platinum’s steep discount to gold has not yet stimulated greater demand, but we
expect lower prices to eventually feed into the retail level and spur demand next year. North
America and India are projected to be strong growth areas in this and next year.
Platinum supply highlights: Overall projection higher
South Africa: We believe production may edge lower to 4.44moz in 2018 and edge lower
to 4.30moz in 2019. Our production views are based in part on those of HSBC South
African mining equity analyst Emma Townshend. South African producers face a host of
structural challenges, including rising costs and low prices, which are compressing producer
margins. ZAR weakness this year and palladium strength has helped offset the negative
impact of lower platinum prices. But, restructuring, cuts in capex, and cost cutting, are
curbing mine output growth. Sluggish South African output should help tighten the
supply/demand balance.
3. Platinum supply/demand balance
(‘000oz) 2011 2012 2013 2014 2015 2016 2017 2018f 2019f
South Africa 4,860 4,110 4,208 3,546 4,572 4,392 4,459 4,441 4,300
Russian production 835 801 736 700 670 717 692 660 675
Russian stock draw 0 0 0 0 0 0 0 0 0
Russian sales 835 801 736 700 670 717 692 660 675
North America 350 306 318 339 314 337 336 337 339
Zimbabwe 340 337 410 401 400 489 466 480 470
Others 100 126 174 167 151 162 159 165 155
Total supply 6,485 5,680 5,846 5,153 6,107 6,097 6,112 6,083 5,941
Autocatalyst gross 3,185 3,158 2,937 3,060 3,232 3,330 3,292 3,180 3,070
Recovery -1,240 -1,120 -1,199 -1,280 -1,112 -1,159 -1,279 -1,388 -1,405
Net autocatalyst 1,945 2,038 1,738 1,780 2,120 2,171 2,013 1,792 1,665
Chemical 470 452 522 576 502 475 504 555 570
Electrical 220 154 195 198 199 198 200 230 240
Glass 515 153 102 143 227 246 364 350 360
Jewelry 1,665 1,888 2,194 2,077 2,172 1,674 1,658 1,650 1,815
Petroleum 210 112 146 172 140 176 220 210 220
Investment 383 272 -167 58 781 655 252 230 275
ETF 77 178 1,038 219 -330 -35 104 50 125
Other 550 618 636 648 656 676 696 720 740
Total demand 6,035 5,865 6,404 5,871 6,467 6,236 6,001 5,787 6,010
Real market balance 450 -185 -558 -718 -360 -139 101 296 -69
Platinum price (USD/oz) 1,721 1,552 1,486 1,385 1,055 1,005 1,055 950 1,095
Source: Johnson Matthey, World Platinum Investment Council, HSBC。。。