Platinum, palladium surplus supply likely

Platinum and palladium supplies are expected to be surplus in the year 2006 and this is likely to keep prices of these precious metals at current levels, said GFMS, the independent precious metals consultancy, in its Platinum and Palladium survey 2006.

According to the report, platinum prices are likely to be in the $980-1,250 range an ounce in 2006 and palladium $250-400 per ounce. Supplies of both metals rose in 2005.

Mine production of platinum rose for the fifth year in a row as the industry in South Africa continues to expand, albeit more slowly than anticipated in previous years.

Palladium production increased at a similar rate but was boosted by surging recovery from the recycling of scrapped autocatalysts. In total, headline supply of platinum was up 4 per cent at 7.48 million ounces with palladium rising by a little over 6 per cent to 7.56 million ounces.

Platinum consumption in autocatalyst manufacturing was up sharply in 2005. This reflected the strength of Europe's light duty diesel market and the phasing in of more stringent Euro 4 emissions regulations.

However, with demand in other industrial applications remaining steady, the gains in autocatalyst were eclipsed by a further substantial decline in platinum jewellery fabrication. This was an ongoing reaction to high platinum prices, which continued to rise over the year.

Again, the most severe effects of this were seen in China, platinum jewellery's largest market. Faced with a cocktail of consumer resistance, pressured margins and intense competition- from gold and palladium jewellery -Chinese fabrication of platinum jewellery fell 24 per cent last year.

As a result, overall demand for platinum eased to 7.53 million ounces in 2005. After its stunning début in 2004, high purity palladium jewellery gained further traction in China last year as fabrication rose 23 per cent.

This was supplemented by higher demand in other countries, where palladium's use in white gold increased and early stage manufacturing of palladium jewellery appeared.

Meanwhile, autocatalyst demand for palladium - by far its largest application - finally stabilised in 2005 after successive declines since 2000.

With steady growth in other industrial uses and an assist from higher investment in retail bullion products, total demand for palladium rose by 6 per cent in 2005 to 7.83 million ounces.

Platinum's residual deficit - which has persisted for several years - was virtually eradicated in 2005 as supply and demand converged. Meanwhile, palladium again experienced heavy releases from above-ground stocks, far in excess of the amount required to balance supply and demand.