Rising demand for platinum and palladium last year combined with numerous strikes by miners in South Africa to put the global supply of both white metals into deficit, according to GFMS Ltd.'s 2013 Platinum and Palladium Survey, released Thursday.
After seven consecutive years of gross surpluses, platinum production fell into a deficit due to significant disruption to mine supply from South Africa. Meanwhile, the annual deficit of palladium fell further in 2012, to more than 1.1 million ounces, due to growth in demand as global supply dropped, GFMS Mining Research Director William Tankard said in a presentation.
Besides uses in jewelry, platinum is widely used in antipollution devices attached to engines that burn diesel fuel. Palladium is widely used in antipollution devices attached to engines that burn gasoline.
GFMS projects global platinum supply will return to a surplus in 2013, but palladium will continue having a large deficit.
"The pieces are in place for further labor unrest as we move into the wage negotiation period in South Africa," said Tankard.
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Global platinum supplies fell 83,000 ounces, or 2.6 metric tons, because of a 12 percent decrease in mine production and higher demand, especially from jewelry makers, whose demand rose 19 percent. The Johannesburg-based metals consultancy, which specializes in global gold, silver, platinum and palladium market research, estimates that last year's global platinum deficit reverses seven straight years of surplus. The metal's supply contracted last year for three reasons: a 10 percent decrease in mining output, recycling of the metal from antipollution devices falling by 9 percent, and the recycling of old jewelry scrap contracting 19 percent.
Demand for platinum is up 1 percent compared to the previous year, despite a 4 percent drop in the metal's use in vehicle antipollution devices. Slightly lower demand in the electronics, glass and chemical sectors was more than offset by increased usage in the petroleum industry, which rose by one-fifth. There was also stronger demand from makers of emissions-sensor equipment. The standout performer, though, was jewelry demand, which grew by 9 percent, aided primarily by a price elastic response and higher discretionary incomes in China.
"The platinum price this year remains in the balance and will very much be determined by supply-side factors again in 2013," said Tankard.
Palladium's gross deficit last year, which expanded to more than 1.12 million ounces or 34.9 metric tons, marked its largest market shortfall since 2001. The global supply of the metal dropped by 4 percent because of miners strikes and a slight reduction in the recycling of the metal from vehicle antipollution devices. The upshot was a 5 percent gain in price.
"For much of the last decade, the specter of Russian sales was a millstone for the palladium price," Tankard said. "With Russian stocks remaining a state secret, it's a component of the market that is difficult to call with confidence. But we are of the view that Russian sales from historical inventory halved last year, and we speculate that 2013 could well mark the end of this source of metal from behind the curtain."