Platinum to bottom out this year, swing back into deficit: GFMS

[LONDON] Platinum prices are likely to have posted their lows for the year, GFMS analysts at Thomson Reuters said in a report on Thursday, with a return to supply shortfalls set to hold the metal at an average US$1,005 an ounce in 2016.

The price of the white metal, used principally in jewellery and autocatalysts, hit a seven-year low of US$806.31 an ounce in January.

The market is set to move back to a deficit in 2016 after a jump in mine supply pushed it into a surplus last year, GFMS said in its Platinum Group Metals Survey 2016.

The platinum market was oversupplied by 54,000 ounces last year, it found, driven largely by a 40 per cent surge in mine output in major producer South Africa after a strike there cut supply the previous year.

That growth is expected to abate in 2016, however.

"There will be little addition from new projects in the development pipeline, while the headwind of mines' reduced capital spending is expected to start to weigh," it said.

Demand for platinum also edged up last year, though to a much lesser degree than supply. Autocatalyst demand climbed 2 per cent to its highest since 2008 and retail investment more than tripled, though jewellery demand eased 4 per cent.

Consumption by automakers in Europe rose 6 per cent. Europe is a leading market for diesel engines, which carry a higher loading of platinum than the gasoline motors favoured in the United States and China.

Chinese jewellery buying, the largest single demand segment for the precious metal, fell for a second year, by 7 per cent to 1.561 million ounces.

"As uncertainty persists over the Chinese economy outlook, we expect people to remain cautious on their spending, and thus demand from the Chinese jewellery sector may continue to fall in 2016," it said.

Palladium's market deficit is set to deepen this year, GFMS said, after its shortfall pulled back to 868,000 ounces in 2015, its narrowest in four years. That was also largely due to a rebound in South African mine output, GFMS data showed.

Demand was flat year on year, with autocatalyst consumption rising 4 per cent.

"All regions but Japan recorded healthy gains," GFMS said."Global gasoline vehicle sales volumes were supported by continued good access to credit (US), tax breaks (China) or a general improvement in market sentiment (Europe)."

That was more than offset by a 27 per cent drop in jewellery demand to a 13-year low of 347,000 ounces. Chinese buying of palladium jewellery slumped to 52,000 ounces, less than a tenth of what it was in 2009.

Palladium prices are expected to average US$595 an ounce in 2016, slightly below current levels.

REUTERS