Platinum finds some of its own momentum

Platinum appears to have found a some momentum of its own during platinum week. Palladium has also considered its ascent during the week.

The annual gathering of the industry in London has perhaps brought home some of the realities facing the industry to buyers, with the broad trends captured in the Market Report published by Johnson Matthey.

Unfortunately the full report is now only available to purchase via Bloomberg rather than for free as previously. But they have published broad numbers of S&D balances and expectations for 2014.

Firstly, there has been an upgrade to the degree of deficit seen in 2013, mostly due to stronger jewellery demand and a bit more investment than in the interim review released back in November 2013.

This year the deficit has increased further again to the deepest seen during the period which JM have been collecting and publishing data.

Most of this is explained by the loss of ~300koz from baseline 2014 supply expectations thanks to ongoing strike action in South Africa.  Given this still hasn't been resolved, this loss could be larger again.

Stronger auto sales are also contributing to stronger demand.  This is largely in line with expectations in this post.

A bigger question than the components of platinum demand is that if deficits have exceeded surpluses since 2007. While high stocks are often cited as a reason why the platinum price hasn't moved so much despite the large disruption to supplies, if the JM numbers are correct, then the total level of inventory should currently be lower now than when prices were much higher back in 2008.

The explanation here is likely to do with the composition of demand. Back in 2007, autocatalysts and other industrial uses were a larger proportion of demand, than today.  Some of this share has been taken by jewellery demand (largely from China) and investment via ETFs.

The problem for prices is that jewellery and investment demand are much more price elastic and more discretionary purchase.  Demand from autocatalysts and other industrial uses are much less price sensitive, at least over short term horizons.

Investment trends remain positive for platinum, with inflows into platinum ETFs in the YTD not too far away from JM estimates for the year as a whole.  So there is not a lot of risk here.

As mentioned earlier, JM upgraded their 2013 jewellery consumption numbers, with previous estimate looking conservative relative to the big increase in platinum sales via the Shanghai Gold Exchange.

This year JM are expecting sales to remain at a similar levels.  While imports of platinum have been strong in the first 4 months of the year, SGE sales have been relatively lacklustre in the last 6 weeks, dropping below the 2013 trajectory.

So perhaps this a risk to the massive deficit projected by JM.  But either way, prices seem more likely to maintain their own momentum seen recently compared to the brief spell seen in January.