MERCHANDISER
Platinum Group Metals Long-Term Outlook
CPM GROUP has released its annual Platinum Group Metals Long-Term Outlook report and includes detailed analysis of the platinum, palladium, and rhodium markets with projections for supply, demand, and prices under three scenarios over the next 10 years. This year’s report also includes a special section focused on China’s PGM markets. Over the next ten years CPM Group projects PGM prices
to remain at historically high levels. The role of investment demand is expected to continue to grow in importance, having greater influence on prices going forward. The upward shift in investment demand, a trend that has been ongoing over the past few years, has changed and is expected to continue to change the dynamics of these markets significantly. Turbulent financial markets, mounting sovereign
debt problems in developed countries and rapidly rising inflation in developing countries have resulted in mixed investor and consumer perceptions of real economic activity and prospects for economic growth going forward. PGM prices suffered severely when economic conditions worsened in 2008 and 2009. “The expansion of the global economy since then has pushed prices to historically high levels. PGMs are primarily industrial commodities, used by the auto, jewellery, electronics, chemical, and glass industries. These industries typically benefit from economic growth,” say the Report’s authors. Platinum Group Metals Long-Term Outlook also
includes detailed analysis of the operational risks being faced by South African PGM miners and how these risks could potentially limit mine supply growth. South Africa is the largest contributor to global PGM mine supply, making these risks critical factors of the market. The report discusses South
of palladium mine supply each year. PGM exploration spending in Canada has been on the rise, which could potentially boost production of PGMs in the country in the latter half of the forecast period. Secondary supply (which accounts for between 10% and 20% of PGM supply) is given significant importance due to its high price sensitivity. Fabrication Demand growth for PGMs is expected to be
strong over the ten year projected period. However, future growth is based on a host of factors. First, fabrication demand growth is heavily influenced by economic growth, since the bulk of demand comes from the auto sector. The report discusses at length the potential for economic growth going forward, growth in global and national auto markets, growth in other markets that use PGMs, and threats that could compromise fabrication demand growth. CPM Group discusses the various geographic growth patterns and the dominating factors affecting fabrication demand by region. Of course, China is an integral component of the global
PGM fabrication demand chain. China is the largest source of platinum jewellery demand and its auto sector has been growing rapidly, pushing PGM use in auto catalysts. These trends are expected to continue through the forecast period. The section on China highlights important developments in recent years affecting the PGM markets and includes ten year projections for supply and demand for platinum, palladium, and rhodium. The increasingly significant role of Investment Demand
The role of investment demand is expected to continue to grow in importance, having greater influence on prices going forward
Africa’s electricity supply, wage inflation, skilled labour shortfalls, and other issues that have disrupted PGM production in the country before and how these problems could affect production going forward. CPM Group expects these problems to weigh on mine supply growth in South Africa over the ten-year period. Electricity generation capacity growth over the next few years, however, is expected to reduce the risk that this problem poses to PGM production in the latter half of the forecast period. Rising production costs in the country – closely monitored by CPM Group – are considered a high risk factor that may shutter shafts or mothball projects over the next ten years. The report also discusses at great length mine supply
from Russia, North America, and emerging growth in mine supply from Zimbabwe. Russia produces around 40%
20 September 2011
in the PGM markets has had a dramatic effect on prices in the past. In the case of rhodium, prices broke above $10,000 by the middle of 2008, the year when electricity shortages put a halt to PGM production in South Africa. Prices dropped to around $1,000 by the end of that year as investors and users reduced their holdings rapidly.
The small size of the PGM markets relative to gold and silver make investor participation even more critical to price developments. The participation of investors often is influenced by supply and demand fundamentals, so any of the fundamental threats facing these markets would have a dramatic influence on investor decisions to buy or sell these metals. In recent years the launch of PGM exchange traded products has helped to boost investment demand overall. CPM Group has been tracking the development of these new product markets.
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CPM Group sells the reports as stand-alone products, although most clients use the CPM Group reports as parts of broader consulting packages related to the specific metals markets.
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