PLATINUM SUPPLY AND DEMAND CLOSE TO BALANCE IN 2004. PALLADIUM TO REMAIN IN SURPLUS; FUND ACTIVITY STEERS PRICE

PLATINUM

Platinum supply and demand are expected to be more or less in balance in 2004, ending a run of five successive years of supply deficit, according to Johnson Matthey’s “Platinum 2004”, published today.

In 2003 the platinum market was 280,000 oz (8.7 tonnes) in deficit, as supply of the precious metal fell short of expectations. Supplies grew by 4.5% to 6.24 million oz (194.1 tonnes), although some mine expansions in South Africa fell behind schedule. In 2004 total platinum supply is projected to rise more strongly as expansion projects gain momentum.

World demand for platinum edged up by less than 1% in 2003 to 6.52 million oz (202.8 tonnes). It was supported by auto industry purchases, which jumped by 23% to a record high of 3.19 million oz (99.2 tonnes). US auto companies returned to the market for almost all their metal requirements, having run down stocks in 2002. Rising sales of diesel cars in Europe and the retrofitting of catalysts to heavy duty vehicles in Japan were also factors. Growth in autocatalyst demand in 2004 is likely to be much less pronounced.

In contrast, global demand for jewellery fell by over 13% to 2.44 million oz (75.9 tonnes) in 2003 as high metal prices discouraged fabrication in China, the largest market. Sales in Japan were also down, impacted by weak consumer demand and increased recycling of metal from stocks. Total jewellery demand may fall again in 2004, although much will depend on the reaction of Chinese buyers to platinum price movements.

The price of platinum, strongly influenced by fund buying, reached a 24-year high of $937 in April 2004. Subsequently the funds closed out some of their long positions, causing a sharp price correction. With the fundamentals easing, the short term price outlook will mainly depend on whether investors decide to rebuild or further reduce their interest in platinum. Johnson Matthey therefore forecasts that platinum will trade between $780 and $920 in the next six months, with the large spread reflecting the potential for market volatility.

PALLADIUM

In 2003 the palladium market surplus widened to 1.19 million oz (37 tonnes), as palladium supply surged by 23% to 6.45 million oz. Russian supply increased by just over 1 million oz, with Norilsk Nickel selling all of its production.

Demand was 9% higher than in 2002 but still lacklustre, coming in at 5.26 million oz (163.6 tonnes), the third lowest total in a decade. It is likely to improve again in 2004, mainly as a result of a higher level of purchasing by the US auto industry, which again depleted its stocks during 2003.
 
The palladium market is expected to remain oversupplied in 2004, with demand growth largely offset by a further expansion in supply from both mines and the recovery of metal from scrapped autocatalysts.

The price of palladium has been supported by speculative interest, which drove it up to $333 in April 2004. However, the large positions built by hedge funds and speculators have made the market vulnerable to major downward corrections. Johnson Matthey expects palladium to trade between $200 and $340 over the next six months.

For more information contact platinum@matthey.com