Autocatalyst Demand Drives Platinum and Palladium Toward Pre-Recession Highs

---

Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The demand for platinum in autocatalysts is forecast to increase 3% to 3.16 million ounces in 2011, according to the Johnson Matthey (OTC:JMPLF) (London, England) Platinum 2011 Interim Review. This demand growth is driven mainly by higher production of heavy duty vehicles in Europe and North America.

The disruption caused by the Japanese earthquake, tsunami and Fukushima nuclear disaster affected purchasing of platinum by domestic manufacturers and plants elsewhere. Platinum demand in Europe is expected to weaken to 1.28 million ounces, despite growth in light duty vehicle production, as further substitution of platinum by palladium takes place.

In industrial sectors, the purchase of platinum is forecast to reach a new record high of 1.96 million ounces. Demand will rise 13% in the glass sector to 435,000 ounces, as platinum alloy melting tanks are installed for LCD glass manufacturing.

In the petroleum industry, construction of new refining capacity will boost platinum demand 24% to 210,000 ounces. Demand in the chemical and electrical sectors is also forecast to be strong.

In the jewelry sector, demand is forecast to be marginally higher when compared to 2010, at 2.47 million ounces. The forecast for China is that gross platinum jewelry demand will increase 2% to 1.69 million ounces. In North America and Japan, demand for platinum jewelry will be robust, but demand will soften in Europe due to higher prices and a move toward lower weights in individual jewelry pieces.

Gross demand for platinum is forecast to increase to 8.08 million ounces in 2011. This is close to pre-recession levels. Continued strong demand will be more than matched by an increase in supplies and higher levels of recycling. The market is expected to end 2011 in a small surplus of 195,000 ounces.

The report says the world economy is likely to see a period of slower growth in 2012, with consequently lower consumption and potentially lower demand for industrial applications. Despite the downside risks, technology changes in light duty European autocatalysts and a return to full production levels in Japan will lead to higher autocatalyst demand.

If the current gold price premium to platinum is maintained, it may spur further increases in demand from jewelry manufacturers. The market will remain in surplus in 2012, but not by a significant amount. Johnson Matthey forecast an average price of $1,650, up to $1,800 an ounce in the next six months. Physical buying will put a floor under the price at $1,450 per ounce.

Growth in vehicle production in Europe and North America is expected to drive palladium demand to record highs of 5.92 million ounces in 2011, showing a 6% increase from the same period last year. The more stringent emissions standards that came into force in 2011 have resulted in higher demand for palladium in gasoline autocatalysts, despite a slower rate of growth in auto production in China.

Industrial demand for palladium is forecast to rise by 7% to reach pre-recession levels of 2.65 million ounces. Demand in the electrical sector will remain strong as sales of new computer equipment stimulate the manufacture of components containing palladium. Demand for palladium process catalysts in the chemical industry also should increase, driven by downstream demand for packaging and textiles, particularly in Asia, says the report.

The palladium market is forecast to be in surplus by 725,000 ounces in 2011, due to sales from Russian state stocks. The palladium market will move into deficit in 2012, with supplies tighter overall. The price is forecast to average $650 in the next six months (between $500 and $800 an ounce). The palladium market will be more industrially driven, with jewelry use continuing to fall.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.