supply deficits underpinning prices

12 March 2012, 11:07 a.m.
By Kitco News
http://www.kitco.com/

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(Kitco News) - HSBC expects the platinum and palladium markets to move into supply deficits during 2012, underpinning prices.

Analysts said auto, industrial and investment demand should improve during the year. Output from the mining sector is unlikely to maintain pace, the bank said.

“Hence, we expect the supply/demand balance for both metals to move from a surplus into modest deficits, propelling prices higher,” HSBC said in a report issued Monday.

HSBC foresees the platinum market swinging to a deficit of 163,000 ounces in 2012 from a surplus of 313,000. The bank looks for a deficit of 43,000 ounces in 2013.

The bank reiterated its average price forecasts for platinum of $1,775 for 2012, $1,825 for 2013, $1,800 for 2014 and $1,800 for the long term, which it defined as five years. HSBC looks for a wide trading range in 2012 of $1,375 to $1,975 an ounce.

Based in large part on an expectation of lower Russian exports, HSBC said it projects the palladium market will move into a deficit of 452,000 ounces in 2012 after a surplus of 974,000 in 2011. For 2013, the bank anticipates the deficit will widen further to 574,000 ounces.

The bank also reiterated its average price forecasts in palladium of $785 an ounce for 2012, $825 for 2013, $835 for 2014 and $850 for the long term. It anticipates a $600-$900 range for 2012.

The largest use of platinum group metals is catalytic converters for motor vehicles. HSBC’s automotive equity research team looks for global light-vehicle production to rise 4.8% to 78.4 million units in 2012, then another 4.2% to 81.7 million vehicles in 2013.

HSBC Looks For ‘Paltry’ Increase In Platinum-Mine Supply During 2012

HSBC said platinum-mine supply is likely to remain tight in 2012 due to factors such as mining capacity, government policy in South Africa and labor unrest. The bank forecast 2012 global supply of 6.298 million ounces, which it said is up a “paltry” 11,000 ounces from its 2011 estimate of 6.287 million. The 2012 forecast is a 357,000 reduction from HSBC’s prior estimate for 2012.

The bank projects platinum demand by the auto industry will rise to 3.286 million ounces in 2012, which is down from its prior forecast of 3.441 million ounces but up from the 2011 estimate of 3.146 million. However, the amount of platinum consumed by the auto sector would be reduced by “recovery” from scrapped vehicles amounting to 1.15 million ounces, leaving net auto demand of 2.136 million for 2012.

HSBC looks for industrial demand of 1.415 million ounces this year, an increase of 60,000 from its prior forecast. Platinum is used in a range of industrial processes by the glass, refining, chemical, electrical and electronics industries.

The bank maintained its 2012 forecast for net jewelry demand of 1.96 million ounces. Analysts expect exchange-traded fund demand to remain positive this year, although they lowered their forecast to 250,000 ounces from 350,000.

Russian Stockpiles Thought To Be Dwindling, Is Key Part Of Bullish Price Outlook

HSBC said it sees limited potential for palladium-mine output to increase this year and next in South Africa, while Russian production could ease based on falling ore grades. “More important, perhaps, Russian stockpile exports appear to be dwindling, and we expect lower sales this year and next, compared to 2011,” the bank said.

HSBC forecast total platinum supply to fall to 6.99 million ounces this year from a 7.202 million estimate for 2011.

Russian stock draws are expected to dwindle to 300,000 ounces from 500,000 last year. The bank pointed out that data on the size and timing of Russian sales are considered state secrets. However, officials with Russia’s Norilsk Nickel and Almaz have implied in the past that stocks were being run down and there is near-universal acceptance of this in the industry.

“With no publicly accessible or reliable data on stockpiles, the only thing we can be reasonably sure of is that for many years, Russia has exported considerably more palladium than it has produced,” HSBC said. “Thus, we infer that its stocks must be declining.”

One way to measure this is to compare Russian production levels with exports. Based on this, HSBC estimated that 500,000 ounces of palladium may have been exported from Russian stockpiles in 2011.

“Our forecasts of supply/demand deficits for 2012 and 2013 are predicated in large part on reduced Russian palladium stockpile sales,” HSBC said. “Thus, eroding Russian stocks are an important component of our bullish price outlook.”

Palladium demand from the auto sector is forecast to rise to 6.022 million ounces from 5.748 million in 2011, although the figure for the current year is an 86,000 reduction from HSBC’s previous forecast. However, the amount of palladium consumed by the auto sector would be reduced by “recovery” estimated a 1.6 million ounces, leaving net demand of 4.422 million.

Combined electrical, electronic and chemical demand for palladium in 2012 was pegged at 1.52 million ounces, down 110,000 from HSBC’s prior forecast. HSBC looks for jewelry demand of 425,000 ounces, down 50,000 from its previous forecast.

Exchange-traded fund demand was estimated at 400,000 ounces for the current year, up 250,000 from the bank’s prior forecast. The demand expected for 2012 is a huge turnaround from 2011, when outflows of 545,000 ounces occurred.

By Allen Sykora of Kitco News; [email protected]

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