Interview With Senior Officials From Johnson Matthey
By Ida Chen
15 Nov 2007 at 09:42 AM GMT-05:00
resourceinvestor.com
SHANGHAI (Interfax-China) -- U.K.-based Johnson Matthey [LSE:JMAT] is a specialty chemicals company, which focuses on catalysts, precious metals and fine chemicals, as well as process technology. The company is the sole marketing agent for Anglo Platinum [JSE:AMS], the world's largest platinum producer, as well as the world's leading authority on the production, supply and use of platinum group metals (PGMs).
On Nov. 13, Interfax interviewed two senior officials from JM's precious metals marketing division, Peter Duncan, general manager of market research, and Neill Swan, sales and marketing manager. Issues under discussion included supply and demand forecasts in the PMG market this year, JM's business strategy in China, as well as the prospects for China's platinum and palladium markets in the future.
JM's current China operations include an autocatalyst manufacturing plant in Shanghai, commissioned in 2001, as well as a PGM salt production base in the same location. The company has been instrumental in supporting the growth and development of China's platinum jewellery market since the early 1990s.
JM released its latest market analysis report, "Platinum 2007 Interim Review", on Nov. 13 in Shanghai.
INTERFAX: What's your prediction for global supply and demand of platinum and palladium in both 2007 and 2008?
PETER DUNCAN: There will be a shortfall in the [global] supply of platinum amounting to 265,000 ounces in 2007, and supply will fall rather than rise, as had previously been expected, to 6.66 million ounces. Platinum demand is expected to grow by 2.9% to a record high of 6.93 million ounces in 2007.
With continued difficulty on the supply side, we expect that prices will remain quite strong, so our forecast for platinum prices over the next six months ranges from $1,350 per ounce, at the bottom end, up to about $1,575 per ounce at the top end.
However, the palladium market looks a little different. The demand side will show growth in 2007, reaching 6.61 million ounces. Supply of palladium mainly comes from Russia, and supply has been very strong this year, partly due to shipments of a lot of stock from last year. Overall, we expect that palladium will be in surplus to the tune of about 1.7 million ounces this year.
Moreover, because there is a big supply surplus, prices will be really driven by investment rather than by fundamentals. We expect palladium prices for the next six months to range between $320 and $420 per ounce.
Platinum demand will continue be strong throughout 2008, and supply is going to struggle to keep up with demand. We therefore expect platinum prices to remain high throughout next year, whereas it is quite clear that the palladium market will continue to be surplus next year.
NEILL SWAN: It is difficult to predict platinum jewellery consumption next year, because jewellery demand yet has to be tested at the current price level of platinum. Moreover, there could be less high-price jewellery production next year, as manufacturers and retailers get used to that particular price level. Jewellery has quite a swing factor, because it is one of those areas in which people can actually say "right, we are not going to buy".
INTERFAX: New highs for platinum prices seem only a matter of time, due to tight supply, a week dollar and rising crude oil prices. Do you think high prices will discourage downstream consumption?
NEILL SWAN: Despite high level prices, consumer interest in platinum is still remarkably strong. However, we haven't yet tested consumers' reaction to platinum prices moving over $1,400 per ounce, so we can't be certain at what point consumers might say platinum is much too expensive.
Prices of gold and platinum tend to track each other, with platinum jewellery generally about twice the price of gold jewellery, and I think that as long as the ratio doesn't get too extreme, people will be quite willing to accept it.
PETER DUNCAN: There are always a certain number of price-sensitive industrial applications, but most of them are quite inelastic, in that demand doesn't fall very much when price goes up, because of the difficulty in finding replacements. You still need car catalysts even when prices go up, if you have to meet legislation to reduce emission. You can substitute palladium for platinum to a certain extent, and what you tend to see is that the faster platinum prices go up, the faster people cry to change the technology to replace platinum with palladium. However, it won't be replaced completely, and most other industrial applications can not really stop using platinum, so I don't expect any significant impact in industrial demand as a result of high platinum prices.
In fact, if you look at industrial demand linked to GDP, you've got a GDP growth of over 20% in China last year, which is widely predicted to experience double-digit growth every year for at least the next five years, basically driving up industrial demand.
INTERFAX: What is your prediction for China's platinum and palladium consumption in 2007?
PETER DUNCAN: In total, platinum consumption will be about 1.1 million ounces or 35 tonnes in China this year, that's about 16% of total global demand. Palladium consumption will be between 800 ounces and 900 ounces in China, or about 13% of the world's total.
Demand will grow rapidly because of auto industry growth in China. At the moment, China is producing something like 9 million cars every year, and that figure will almost double in ten years, making China the biggest car producer in the world.
INTERFAX: As we know, Johnson Matthey has a strong position in the global platinum market. With regard to business in China, does your company directly sell platinum in the Chinese market?
NEILL SWAN: JM is one of main platinum suppliers to the Shanghai Gold Exchange, since it launched platinum contracts, and we were instrumental in helping organizations to get to the point where they had platinum contracts with tax benefits on the SGE.
The SGE has a single source of platinum from a company which has the rights to import platinum, and we are a major supplier to that company.
INTERFAX: Do you have any plans to expand your presence in China? Have you ever considered a partnership with a local market player or local platinum producers in China?
PETER DUNCAN: We are planning to expand the capacity of our existing plants, and are also evaluating a number of different options to grow increase business in other products. We won't yet announce any formal decision, but we certainly expect to expand our operations in China.
We have already established partnership with the China Petrochemical Corp. [Sinopec], whereby we distribute their hydro processing catalysts outside China. We consider all our customers as partners, and work very closely with our customers to understand their technical requirements.
Our industrial customers in China are mainly automotive manufacturers, as well as a wide range of processed catalyst customers for chemical salts. Platinum is used in a whole range of different catalyst applications, such as petrochemicals, plastics and silicon production.
INTERFAX: As platinum group metals (PGMs) are widely used in autocatalysts, environmental pollution solutions, jewellery manufacturing, and chemical and oil refining, what are the major downstream sectors for PGMs in China?
NEILL SWAN: Jewellery and autocatalyst manufacturing are the main downstream sectors for PGMs in China. China is the largest platinum jewellery market in the world, and more than 50% of the world's platinum jewellery is actually made and consumed in China. It is also the largest palladium jewellery market of the world, with two-thirds of the world's palladium jewellery made and consumed in China.
INTERFAX: As far as I am aware, Chinese people are not as familiar with palladium jewellery as they are with platinum jewellery. What are your thoughts on this matter?
NEILL SWAN: The palladium market is a very new market [in China], and manufacturing only started in 2004. It was a response by jewellery manufacturers in China to problems they have had from platinum prices rising so quickly. Their profit margin was eaten away, so they introduced the new product, which was palladium, in order to spread their profit base.
In China, the jewellery manufacturing industry is actually dominated by 10 to 15 large companies. They all went into the palladium jewellery manufacturing sector at the same time, and the market is growing very quickly in China.
China is a huge country with many retail shops, so lots of the early growth in the palladium jewellery market in China was just filling counters, and now it is going to take a while for consumers to really understand what palladium is.
In major cities of China, palladium jewellery doesn't have a lot of exposure. There are two reasons for this, first of all, people in major cities are well educated about platinum through promotional events organized by platinum guilds. However, if you get outside the major cities, knowledge about the value of platinum is not so widespread, so palladium seems like a low-cost alternative.
The other thing is that the disposable income of young people in big cities like Beijing and Shanghai is perhaps higher than in small cities, so they can afford platinum jewellery. So palladium jewellery sales are more successful in smaller Chinese cities.
© Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262. |
