China a bright prospect for platinum consumption – Johnson Matthey
interfax.cn
United Kingdom-based Johnson Matthey, a specialty chemicals company focused on catalysis, precious metals, fine chemicals and process technology, believes that platinum consumption by China, particularly in the jewelry and automotive industries, will outshine that of other countries during the global economic downturn.
As one of the main platinum suppliers to the Shanghai Gold Exchange and with multiple platinum chemical and automotive catalyst plants and factories around Shanghai, JM has a very strong commitment to China. "JM is always on the look out to expand our customer base here in China, and for opportunities to sell the whole range of our products," JM's marketing general manager, Jeremy S. Coombes, said.
China's fast pace of economic development in recent years has meant the country is now world's largest jewelry platinum consumer.
Global platinum consumption has been on a rollercoaster ride this year.
The first half of 2008 saw low consumption due to rising prices, which led to an increase in the amount of platinum recycling and a decrease in retail sales of jewelry. As demand dropped, so did prices, and the second half of the year saw a rush of purchases by jewelry manufacturers and retailers intent on expanding stocks while prices slumped considerably.
"With high prices comes a lull in jewelry demand, though at current price levels, jewelry demand is looking much more positive. And right now China, is a bright prospect for us," Coombes said.
"There are good opportunities, as platinum has now moved much closer to affordable levels for various consumer markets. And we are moving into key purchasing seasons, including the Chinese New Year and Valentine's Day," Neill Swan, sales and marketing manager of JM's precious metals division, added.
Around five or six years ago, the jewelry industry accounted for 50 percent of the total amount of platinum consumed worldwide, but that figure now stands at less than 20 percent. In the last few years, increasing amounts of platinum have gone into the automotive industry, changing the balance of platinum consumption in the global market.
Though China has traditionally mainly used platinum in the jewelry industry, its burgeoning automotive industry has a key role to play in global platinum consumption.
"As far as China is concerned, we have a market which is still expanding and we will work with automotive companies here to fully supply them. JM works with nearly all of China's automotive manufacturers, supplying catalysts to the majority and doing development work with many others," Coombes said.
JM expects automobile production growth and the ongoing industrialization in China to support platinum use. Chinese light duty vehicle production is expected to expand 12.35 percent year-on-year to 9.1 million units in 2008. "If China's economy continues to expand, we would expect automotive and industrial demand to increase as well," Coombes said.
"The latest prediction for China's automotive catalyst platinum consumption growth is a 9 percent annual increase for 2008, and roughly the same increase for 2009. If that [growth] is sustained, with support from the Chinese government's stimulus package, we will then see a greater amount of platinum and palladium used in vehicles, especially with stricter emission controls being introduced," Coombes said.
China's new automobile emission legislation came into effect in mid-2008 in the form of the Chinese equivalent to Euro III standards in most of the country, and Euro IV standards in big cities like Beijing, Shanghai and Guangzhou.
Currently, China's platinum and palladium consumption in the automotive industry accounts for about 7 percent of the world's total, but that figure is increasing every year. China will play an important role in bolstering platinum usage in the global automotive industry, according to Coombes.
According to JM's interim review for the 2008 PGM market, other industrial users of platinum are also seeing great potential in China, in particular glass fiber production, leading to increasing numbers of factories from Europe and North America being relocated to China, which now accounts for over 40 percent of the industry's global production capacity.
In regard to any possible direct impact from sliding platinum prices on JM's profitability and operations, Coombes believes it is minimal. "We are not a producer or miner. We take platinum and process it, so we add value to it and then pass the cost on to our customers. We still have a margin on what we output," he explained.
New York Mercantile Exchange and Commodity Exchange (COMEX) platinum prices have seen sharp drops since the middle of the year, down more than 50 percent to around the $840 per ounce mark on Nov. 18.
According to the interim report, JM forecasts that global platinum demand will fall by 2.3 percent to 6.52 million ounces in 2008 on lower North American automobile output as well as lower jewelry and investment consumption. However, supply is to drop 4.2 percent to 6.28 million ounces on lower South African production, causing a shortfall of 240,000 ounces on the global market.
In 2009, JM expects platinum supply from South Africa to go up, as many projects are in the process of expansion, however, that number may be lower than previously envisaged, because falling prices could put the brakes on some projects. Even so, it is too soon to predict if the platinum market will change from deficit to surplus next year.
JM's prediction for the next six months shows that platinum could trade at as low a level as $700 per ounce should the current economic crisis continue. However, in contrast, it could trade as high as $1,400 per ounce within the period if speculative fund selling abates and prices more closely reflect fundamentals. |
