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The short term will undoubtedly be challenging, however, medium and long term fundamentals remain intact and healthy. Tightening emission legislation, growth in non-road emissions control systems and anticipated growth in the diesel engine market share, bode well for the demand side while supply particularly from South Africa remains constrained. The medium term outlook is looking positive and the longer term view is even better, with stationary fuel cells promising strong growth potential and ultimately the possibility of the automotive drive train evolving from internal combustion to fuel cell driven solutions.
The gains in the US Dollar basket price during the first quarter of the year
were eroded following the turmoil and volatility that ensued from the earthquake
in Japan in the second quarter. Prices since then trended sideways to down
following deepening sovereign debt concerns in Europe, debt default scares,
credit risk downgrades, rumours of Chinese growth slowing and slow recovery in
Japan. The Rand basket was under downward pressure in the six month period from
March to July, but Rand weakness in the final quarter brought some relief.
During the first half of the 2011 financial year, platinum prices rose 6% from
$1,679 per ounce to $1,773 per ounce averaging $1,744 per ounce. Platinum prices
averaged $1,778 per ounce in the second half of the financial year, a rise of 2%
on the first half average.
Palladium price growth continued to outperform platinum on the back of firm
supply and demand fundamentals, with palladium dominating the gasoline engine
auto catalyst market in North America and China. ETFs were another source of
demand in the first half of the period whilst rumours persist that the Russian
stockpiles are close to depletion.
Rhodium has traded down with some autocatalyst manufacturers and Original
Equipment Manufacturers (OEMs) well stocked after having stocks of metal for
future requirements. Not even the launch of a new ETF by Deutsche Bank in May
could arrest the price fall.
The increasing need to manage engine emissions will remain the key driver of
demand with more types of engines starting to fall into the legislative net.
Other areas of growth such as fuel cells, both stationary and those used in
vehicles, continue to gather momentum. Electric and hybrid power trains may
increase in market share over coming years but are likely to be transition or
bridge technologies and remain unlikely to become a significant market segment
in terms of vehicle units in the next decade.
Non-road diesel remains a strong new market for platinum, with only Europe and
the US covered by legislation at this stage, accounting for approximately a
fifth of the world’s non-road vehicle fleet. China and India are expected to
follow in 2015/16 and other emerging countries after that. Estimates of on-road
heavy duty diesel vehicles have been upgraded, due to stronger than expected
orders. This is driven by new Tier VI emission legislation coming in 2014 and
some retro fitting.
Diesels in Europe are back above 50% market share. The US also showed growth in
diesel market share and is expected to increase from around 3% currently, to
slightly more than double this figure by 2017.
We have seen sales in China, the world’s largest jewellery market, increase by
more than 10% year on year (800,000 ounces up to September 2011) despite the
Dollar platinum price on average being 13% higher this year compared to 2010.
Record high gold prices and the strong price increase in palladium, used in
competing white gold, contributed to platinum appearing more affordable in
relative terms.
Growth in the investment market slowed this year. There were some redemptions in
the platinum market in the middle of the year and in the last month of the 2011
financial year, but overall investors have been adding to their ETFs holdings.
Overall, platinum ETF holdings increased and are still close to record levels.
Following a strong performance in Lonmin’s first half, the palladium market has
seen consistent redemptions since March, resulting in a net drawdown for this
year. Our long term view for this demand category is that it will remain a
modest net consumer over time.
South African supply side challenges remain largely unchanged whilst some
aspects are amplified due to social pressures. Deeper mines, lower grades, skill
shortages and power and water supply challenges all remain.
A further deterrent to investment has been the widely broadcast debate on
nationalisation. Incidents of social and labour unrest place additional strain
in an industry that has to compete for capital to deliver the supply required to
match future demand.
The strength of the Rand and inflationary pressures continue to squeeze
operating margins and cash flows. These factors not only provide an underpin to
metal prices, but may also leave the market in deficit if demand picks up more
strongly than anticipated.
Consequently we will continue to carefully balance the need to invest in growth
capacity ahead of an upturn in demand whilst at the same time remaining focused
on maintaining strong financial discipline.
Our outlook for 2012 has been reviewed with demand for platinum now expected to
be lower than previously estimated. Our previously estimated small deficit has
now changed to a balanced or modestly oversupplied market for the calendar year.
However, we believe that most companies in our end user markets, for example the
auto industry, have strong balance sheets and are financially more robust than
they were in 2009. They will be able to weather the potential slowdown much
better and we also expect the market rebound to be strong when it occurs due to
pent-up demand, with markets expected to recover from 2013 onwards.
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