Market review

 

 

The global macro-economy showed tentative signs of recovery in late 2009 and throughout 2010, following the world economic crisis of 2008. Developed markets have remained under pressure while emerging markets such as China and India continued to demonstrate strong growth rates. The automotive industry as a result recovered dramatically during the past year. Light and heavy-duty vehicle production, which had fallen to around 65 million units in 2009, rebounded to exceed 81 million units in 2010. China once again cemented its position as the world’s largest vehicle market with passenger car sales growing beyond the 13 million level for the first time; 32% higher than 2009 and more than double the figure for 2008. Despite these positive developments in the vehicle market during the past year, it was physical investment demand in metal commodities that pushed overall average prices to new highs. The launch of the US platinum and palladium Equity Traded Funds (ETFs) at the beginning of the year saw a massive uptake of physical metal into these products.

Platinum

There was renewed optimism in the metals market following the announced launch of the US based ETFs for both platinum and palladium. Prices for platinum climbed throughout the financial year from just over $1 500 per ounce to end at approximately $1 800 per ounce, leaving an average for the year of $1 610 – 34% higher than the prior year. A major sell off during the annual Platinum Week activities in May, due to renewed economic fears interrupted this rising price trend, but this soon reasserted itself as the US decision to launch Quantitative Easing 2 (QE2) in the midst of a slow economic recovery, triggered increased investment demand for commodities.

In the automotive markets, a significant recovery in worldwide production and sales stimulated increased usage of PGMs. The recovery of the diesel market share in Europe, which resulted in diesel engine sales once again exceeding those of petrol engines, was particularly beneficial to platinum demand. European platinum usage as a result grew by nearly 50% over the prior year.

     

Notwithstanding the emergence of China as the world’s largest vehicle market and production facility, and the restoration of US vehicle inventories to more normal levels, total platinum usage in the automotive sector still fell short of 2007 levels. Encouragingly usage exceeded 3 million ounces once again, supported also by increased fitment of catalysts in heavy duty applications. Government incentives offered in China – which ended at the end of 2010, have clearly had a beneficial effect for the year but may as a consequence dampen sales for 2011.

The uncertain macro-economic environment stimulated a flurry of activity into physical and paper investment products, with the US-based platinum ETF adding half a million ounces during the year. This substantial rise in investment demand had a greater influence on prices for the year than fundamental activity.

Sustained higher platinum prices throughout 2010 resulted in significantly reduced Chinese jewellery demand. This has been, in part, due to the strong retail performance and high levels of inventory build in 2009, which at the time provided great support to the platinum market. It should be noted that the price tolerance of the Chinese people is rising all the time, which is a very encouraging development.

 

World vehicle production 

Million   2008   2009   2010   2011  
Forecast  
Asia   32.3   32.5   41.7   42.3  
Western Europe   16.2   12.9   14.7   15.0  
North America   13.3   9.0   12.5   13.6  
East Europe   6.7   5.0   6.1   6.7  
South America   4.1   3.9   4.4   4.9  
Other   1.7   1.7   2.0   2.3  
Total   74.3   65.0   81.4   84.8  

 

Palladium

Palladium prices began the year at just above $400 per ounce and hit a high of $797, a level not seen since 2001. Prices averaged $525 per ounce for the year, which is double the price achieved for 2009.

The fundamental driver of the palladium price has been the dramatic rise in vehicle production in Asia and continued production increases in the US, both of which are gasoline markets and carry predominantly palladium catalysts. This drove usage for the year beyond the five million ounce level. Increased substitution of platinum by palladium in diesel applications added further demand for this metal.

Investment demand also increased during the year and this, in combination, with the launch of the US ETF for palladium resulted in an additional million ounces of demand, providing further impetus to the rising price. The probable end to Russian destocking of palladium, which has added roughly one million ounces per year for the last six years, has also benefited sentiment in this market.

Rhodium

In comparison to both platinum and palladium, fluctuations in the price of rhodium have been more modest, as the increase in demand on the back of growing automotive production was met by adequate supplies of the metal. The average price for the year was over $2 400, approximately $800 higher than the previous period reflecting the rebound in vehicle build.







 

Outlook

Despite the recovery in metal prices experienced during 2010, the current and future environment is not without its challenges. 2011 has seen the re-emergence of EU debt concerns and austerity measures undertaken by government are expected to dampen demand for goods and services in large parts of Europe. The US is also showing little sign of recovery with rising debt and stubbornly high unemployment. These challenges along with persistently higher oil prices and the threat of inflation will continue to exert a negative influence on the prospects of further economic recovery.

Notwithstanding the macro challenges faced by the developed economies, the resilience displayed in emerging markets, particularly the Brazil, Russia, India, China (BRIC) economies, should continue to drive demand for all commodities. Whilst efforts to cool China’s economy have proven successful, this region could be re-stimulated given the massive infrastructural programme envisaged over the next five to ten years and the risk of social unrest in a weakening economy. Pent up demand for vehicles is growing in all regions of China and the developing world and expectations are that this demand will only begin to be satisfied during the next five years. Growing vehicle demand in emerging economies and tighter emission legislation throughout the world is, therefore, likely to underpin strong fundamental demand for PGMs in the medium term. Efforts by the Chinese authorities to limit new car registrations in some cities to curb both congestion and pollution may impact on demand for new vehicles, but the inclusion of emission control devices in heavy duty and off-road vehicles should more than compensate.

This forecast growth in demand, particularly for palladium, is likely to be confronted by serious metal deficits as the growth in recycled and newly mined metal proves insufficient to compensate for the end of Russian destocking.

Numerous challenges facing the South African PGM producers will require of management a huge effort to ensure sufficient supply of these metals are available to meet the world’s growing demand for them.

Fuel cells review 2011

With the world’s attention focused on climate change and reducing its dependence on fossil fuels and CO2 emissions, fuel cells appear to be back on the radar screen after many years in the shadows. Although currently a small contributor to energy generation when compared to other technologies, the anticipated growth path to the 2017 horizon is projected to be exponential. The current story of fuel cells is all about a robust and clean contributor to the energy mix of the future. While the different fuel cell technologies advance simultaneously, it is the polymer electrolyte membrane (PEM) fuel cell that is the most important to the PGM industry as they utilise PGMs exclusively, consuming about 20 000 ounces in 2010.

More than 90% of units shipped last year, were low temperature PEM fuel cells and direct methanol fuel cells (DMFCs). In terms of Megawatt (MW) shipped, PEM fuel cells make up about 43 MW of the total 90 MW shipped overall. About 15 000 fuel cell units were shipped in 2010, logging a compounded annual growth rate of 27% since 2008. Approximately 70% of this growth was recorded in the stationary fuel cell market.

The US, Japan, Germany and South Korea dominate world markets overall, with PEM fuel cell manufacturers primarily based in the US and Japan. The forecast projects exponential growth expanding beyond the two million unit mark by 2015. Growth in the initial years is driven primarily by the stationary and portable sectors. Strong growth in fuel cell vehicles emerges by 2015, boosting the transport fuel cell sector. Significant resources are being directed at reducing PGM loadings, with nanotechnology expected to play a vital role in reducing the amount of platinum per fuel cell unit, helping to make fuel cells commercially viable. The reduction of the overall cost of a fuel cell system as well as hydrogen supply infrastructure is gaining momentum.

Sales of fuel cells in Japan for residential heat and power generation rose by 60% on a year-on-year basis after the March 2011 earthquake. A subsidy granted by the government to sustain purchases over the fiscal year was completely used within three months. Overall, PGMs are expected to maintain their edge over competing materials. With the pace of fuel cell adoption expected to rapidly increase over the intervening period, we are confident that a new era of industrial PGM demand is dawning.


  Forecast
(000 toz)  2007   2008   2009   2010   2011   2012  
Platinum supply/demand balances              
Demand              
Automobile   4 080   3 830   2 950   3 270   3 630   4 070  
Jewellery   1 545   1 355   2 410   2 160   2 180   2 270  
Industrial   1 850   1 755   1 230   1 695   1 725   1 780  
Investment   170   425   650   650   250   150  
Total demand   7 645   7 365   7 240   7 775   7 785   8 270  
Supply              
South Africa   5 185   4 485   4 580   4 735   4 740   4 970  
North America   350   330   260   230   360   370  
Other   280   745   665   1 015   840   880  
Recycle   925   970   850   1 020   1 100   1 130  
Russian sales   800   800   775   800   790   785  
Total supply   7 540   7 330   7 130   7 800   7 830   8 135  
Balance   (105)  (35)  (110)  25   45   (135) 

  Forecast
(000 toz)  2007   2008   2009   2010   2011   2012  
Palladium supply/demand balances              
Demand              
Automobile   5 075   4 940   4 170   5 200   5 510   6 100  
Industrial   3 305   3 620   3 365   3 155   3 220   3 150  
Investment         1 055   200   200  
Total demand   8 380   8 560   7 535   9 410   8 930   9 450  
Supply              
South Africa   2 670   2 355   2 472   2 530   2 635   2 735  
North America   980   870   655   665   865   930  
Other   287   310   1 287   1 360   645   665  
Recycle   928   1 085   986   1 370   1 530   1 800  
Russian sales (production from 2009)  4 250   3 750   2 805   2 850   2 850   2 750  
Total supply   9 115   8 370   8 205   8 775   8 525   8 880  
Balance   735   (190)  670   (635)  (405)  (570) 

  Forecast
(000 toz)  2007   2008   2009   2010   2011   2012  
Rhodium supply/demand balances              
Demand              
Automobile   845   759   682   750   810   880  
Industrial   150   136   113   150   170   180  
Total demand   995   895   795   900   980   1 060  
Supply              
South Africa   665   580   640   650   670   710  
North America   20   20   10   15   20   20  
Other   20   15   25   25   30   30  
Recycle   205   220   185   230   240   260  
Russian sales   70   70   65   70   70   65  
Total supply   980   905   925   990   1 030   1 085  
Balance   (15)  10   130   90   50   25