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Platinum: Demand Up, Supply Down

Industry's 2016 platinum demand set to keep rising as mine supply falls...
 
PLATINUM demand has increased and is set to keep on rising compared to last year according to industry analysts, whereas supply is falling.
 
Total demand for the metal, which finds its single largest use by industry in catalysts to help clean emissions from diesel engines, is set to grow by 2% compared to 2015, while total supply shrinks 3% according to the Platinum and Palladium Focus 2016 from leading precious metals consultancy Metals Focus.
 
Last year's total supply of platinum was just over 8 million Troy ounces, with total demand reaching 8.2moz, says the report. That marked a 17% and 9% increase respectively from 2014.
 
Global platinum demand is being driven by strong investment demand, assisted by booming demand in Japan, says a report from consulting analysts and engineers SFA Oxford.
 
Demand for platinum in the automotive industry is also rising, says Metals Focus, forecasting a 2016 increase of 5% to 3.4moz.
 
Platinum is essential for catalytic converters used with diesel engines. Tighter regulations on emissions are spreading to off-road vehicles and power generators – trends which will support the increase in demand for platinum according to the analysts.
 
Automotive industry demand growth in 2015 was led by a 9% rise in vehicle sales in Western Europe, where the imposition of the new Euro 6 legislation also increased platinum loading per car, and 9% growth in India.
 
Platinum supply, in contrast, is set to fall 3% compared to last year according to Platinum and Palladium Focus, with mine production falling 5% but auto-catalyst recycling increasing by 6%. 
 
Producers in South Africa, the world's top platinum mining nation, are set to face "tough wage talks" reports the Reuters news-wire after their poor balance sheets and low market prices compounded the effects of a five-month strike from 2014.
 
The Association of Mineworkers and Construction Union plans to demand pay rises of around 50% for the lowest paid workers, says the latest weekly note from strategist Jonathan Butler at Japanese conglomerate and auto-maker Mitsubishi, with a 15% increase demanded for other employees, together with housing allowances and other benefits.
 
That demand looks "high in comparison with the country’s inflation rate of 6.1%," says Butler, and "another percentage settlement in the high single digits seems the most likely eventual compromise."
 
"Lower refined production from South Africa and Russia outweighs increases from other regions and from recycling," says SFA Oxford's revised supply and demand forecast, made for the mining-backed World Platinum Investment Council (WPIC).
 
Supply from auto-catalyst recycling is rising due to the improvement in base metal and other commodity prices, says Metals Focus, helping to raise profitability for scrapyards and inviting higher levels of vehicle scrapping.
 
Following the Volkswagen emissions scandal, the immediate plunge in platinum prices suggested that investors thought demand for diesel-engine cars would weaken. That isn't happening however, due to diesel fuel costs still being cheaper than gasoline.
 
What's more, Europe's new emissions rules, as well as industry attempts to get past the VW scandal, will require "more loadings" of platinum into diesel catalysts, said Peter Duncan, manager of market research at refining and technology specialist Johnson Matthey Plc, in a presentation during Platinum Week in London in May.
 
The likely 2017 requirement in Europe's forthcoming Euro 6d regulation for so-called 'lean NOx traps' – which further cut the quantity of particles released into the air – will also mean "more platinum load" says Duncan.
 
2016 will be a strong year for industrial demand, he explained, driven by the global chemicals sector and especially China, with demand from the glass industry also remaining solid as fuel cell use inreases, led by Japan and Korea.
 
Johnson Matthey's Duncan believes that platinum coin sales are likely to have a strong year, along with bullion bar sales in Japan.
 
South Africa's AMCU union leaders have said they don't plan on striking over the new wage demands, but "even limited labour stoppages could have a marked impact on metal availability" and thus prices, says Butler at Mitsubishi, because platinum producers now have "far less flexibility to draw on refined stocks compared with [the previous strike action of] 2014."

A student of Natural Sciences at Durham University, Katie Hillan is currently working as a research assistant at BullionVault. 

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