JOHNSON MATTHEY RELEASES “PLATINUM 2006” REVIEW

PLATINUM

PLATINUM MARKET IN DEFICIT FOR 7TH YEAR

World demand for platinum reached 6.7 million oz in 2005, an annual rise of 160,000 oz, according to Johnson Matthey in ‘PLATINUM 2006’, released today. Purchases by the autocatalyst sector again grew strongly. Supplies of platinum grew by 140,000 oz to 6.63 million oz, with greater output from South Africa and Russia. Accordingly, the platinum market was undersupplied by 70,000 oz, the seventh successive year of deficit.

DIESELS DRIVE SURGE IN AUTOCAT DEMAND

Autocatalyst demand for platinum surged by 330,000 oz to a new high of 3.82 million oz. Most of the growth occurred in Europe and stemmed mainly from tighter emissions rules and the increased use of catalysed soot filters on light duty diesel vehicles. Purchases of platinum for jewellery manufacture fell by 200,000 oz to 1.96 million oz. The high price of platinum prompted a reduction in stocks across the trade and an increase in recycling of old jewellery.

POSITIVE OUTLOOK FOR 2006

Platinum autocatalyst demand will strengthen in 2006, with further growth from the European diesel sector taking total purchases past the 4 million oz mark. Demand for platinum jewellery from affluent consumers in all major regions remains relatively robust, but further appreciation of the platinum price may bring about more liquidation of trade stocks. If supplies from South Africa increase as planned, Johnson Matthey expects the platinum market to remain in moderate deficit in 2006.

FUNDS COULD PUSH PLATINUM PRICE TO $1,250

The price of platinum traded between $860 and $880 for much of the first half of 2005. The second half was marked by increased volatility and a strong rally, as a substantial influx of fund money propelled the price to $1,012 in December. With no end in sight to the current commodities bull market, the price has potential to reach $1,250 during the next six months, with good end user demand likely to limit the downside to $1,025.

PALLADIUM

PALLADIUM DEMAND RECOVERY CONTINUES

Palladium demand grew by 480,000 oz in 2005 to a five-year high of 7.04 million oz, primarily due to increased purchases by Chinese jewellery manufacturers. As in 2004, mine production was supplemented by substantial year-end sales of Russian metal from stocks and, at 8.39 million oz, total mine supplies of palladium exceeded demand by 1.35 million oz.

JEWELLERY MANUFACTURING UP SHARPLY

Demand for palladium from the Chinese jewellery trade jumped by 71 per cent in 2005 to 1.2 million oz. The low cost of financing palladium, and the higher profit margins available compared with platinum, enabled manufacturers and retailers to establish and maintain large inventories of palladium jewellery. In contrast, purchases of palladium for autocatalysts increased by less than 1 per cent to 3.8 million oz in 2005, as average catalyst loadings continued to decline.

MIXED PROSPECTS FOR DEMAND THIS YEAR

After rising strongly for the last three years, demand for palladium could flatten out in 2006. Autocatalyst demand prospects are positive, as OEMs in the USA and Asia are increasingly replacing platinum with palladium in autocatalysts for gasoline engines. The outlook for jewellery demand is less certain. Although retail sales in China may well strengthen, the large inventories of palladium jewellery built up in 2005 could stifle any growth in purchases of metal by manufacturers. With South African mine output expanding, and Russia continuing to sell state stocks, another surplus in supply in 2006 is likely.

PALLADIUM PRICE COULD PASS $400 BUT DOWNSIDE RISK REMAINS

The liquidity in the palladium market capped the price at or just above $200 for the first nine months of 2005, before fund buying in the fourth quarter pushed the price to $297. If speculative buying continues, Johnson Matthey forecasts that palladium could trade as high as $420 over the next six months, but that in the event of a major fund sell-off the price could drop to as low as $260.