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GFMS PLATINUM GROUP METALS SURVEY 2016
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GFMS PLATINUM GROUP METALS SURVEY 2016 By: Rhona O’Connell, Head of Metals Research & Forecasts William Tankard, Manager, Mining Cameron Alexander, Manager, Regional Demand Ross Strachan, Manager, Regional Demand Sudheesh Nambiath, Lead Analyst Saida Litosh, Senior Analyst Janette Tourney, Senior Analyst Johann Wiebe, Senior Analyst Ling Wong, Senior Analyst Erica Rannestad, Senior Analyst Samson Li, Senior Analyst Dante Aranda, Analyst Natalie Scott-Gray, Analyst Tamara Imangaliyeva, Analyst Gregory Rodwell, Analyst Alex Ji, Analyst Helen Cheng, Analyst Beverley Salmon, Customer Relationship Manager
PUBLISHED May 2016 BY Thomson Reuters The Thomson Reuters Building, 30 South Colonnade London, E14 5EP, UK E-mail:
[email protected] Web: financial.tr.com/eikon-metals
Table of Contents 1. Summary and Price Outlook
5
• Introduction 5 • Platinum in 2015 6 • Palladium in 2015 7 • Rhodium in 2015 9 • Outlook 9
2. PGM Prices
• Platinum & Palladium 10 • Rhodium 11
3. Investment
14
• Overview 14 • Commodity Exchanges 14 • Retail Investment 15
4. Supply
10
18
• Mine Production 18 • Production Costs 23 • Autocatalyst Recycling 26 • Jewellery Scrap Supply 28 • Above-Ground Bullion Stocks 28
5. Demand
32
• Autocatalyst Demand 33 • Jewellery 40 • Dental 45 • Electronics 45 • Glass 47 • Chemical 48 • Petroleum 49
6. Appendices
• • • • • •
51
Appendix 1 - Platinum Supply and Demand (ounces) Appendix 2 - Palladium Supply and Demand (ounces) Appendix 3 - Platinum Supply and Demand (tonnes) Appendix 4 - Palladium Supply and Demand (tonnes) Appendix 5 - Rhodium Supply and Demand (ounces) Appendix 6 - Rhodium Supply and Demand (tonnes)
FOCUS BOXES • Ruthenium and Iridium Prices 11 • Platinum and Palladium Price Correlations 13 • Platinum, Palladium and Rhodium Exchange Traded Funds 16 • Mergers, Acquisitions & Raisings in the PGM Mining Sector 24 • Trade Flows 30 • Fuelling the Future 50
© Thomson Reuters 2016. All content provided in this publication is owned by Thomson Reuters and/or its affiliates (the “Thomson Reuters Content”) and protected by United States and international copyright laws. Thomson Reuters retains all proprietary rights to the Thomson Reuters Content. The Thomson Reuters Content may not be reproduced, copied, manipulated, transmitted, distributed or otherwise exploited for any commercial purpose without the express written consent of Thomson Reuters. All rights are expressly reserved. TRADEMARKS “Thomson Reuters” and the Thomson Reuters logo are trademarks of Thomson Reuters and its affiliated companies. The third party trademarks, service marks, trade names and logos featured in this publication are owned by the relevant third parties or their affiliates. No use of such mark, names or logos is permitted without the express written consent of the owner. Disclaimer of Warranties and no Reliance This publication is provided by Thomson Reuters on an “as is” and “as available” basis. Thomson Reuters makes no representations or warranties of any kind, express or implied, as to the accuracy or completeness of the Thomson Reuters Content. Thomson Reuters is an aggregator and provider of information for general information purposes only and does not provide financial or other professional advice. Thomson Reuters is not responsible for any loss or damage resulting from any decisions made in reliance on the Thomson Reuters Content, including decisions relating to the sale and purchase of instruments, or risk management decisions.
ISSN: 2397-5784 (Print) ISSN: 2397-5792 (Online)
THOMSON REUTERS SURVEYS: GFMS GOLD SURVEY 2016 31st March 2016 GFMS COPPER SURVEY 2016 5th April 2016 GFMS GOLD SURVEY 2016: Q1 UPDATE AND OUTLOOK 26th April 2016 WORLD SILVER SURVEY 2016 5th May 2016 GFMS PLATINUM GROUP METALS SURVEY 2016 12th May 2016 GFMS GOLD SURVEY 2016: Q2 UPDATE AND OUTLOOK 26th July 2016 GFMS BASE METALS REVIEW AND OUTLOOK October 2016 GFMS GOLD SURVEY 2016: Q3 UPDATE AND OUTLOOK October 2016 GFMS GOLD SURVEY 2016: Q4 UPDATE AND OUTLOOK January 2017
ACKNOWLEDGEMENTS The estimates shown in GFMS Platinum Group Metals Survey for the main components of mine production, scrap, fabrication, investment and stock movements are calculated on the basis of a detailed supply/demand analysis for each of the markets listed in the main tables. In the vast majority of cases, the information used in these analyses has been derived from visits to the countries concerned and discussions with local traders, producers, refiners, fabricators and central bankers. Although we also make use of public domain data where this is relevant, it is the information provided by our contacts that ultimately make GFMS Surveys unique. We are grateful to all of them.
NOTES UNITS USED: troy ounce (oz) =
31.1035 grammes
tonne =
1 metric tonne, 32,151 troy ounces
• Unless otherwise stated, all statistics on supply and demand are expressed in terms of fine metal content. • All references in this publication to “ounces” refer to troy ounces. • Unless otherwise stated, US dollar prices and their equivalents are for the p.m. fixes of the London Platinum and Palladium Fixing Company Limited for prices prior to 1st December 2014 and the p.m. LBMA Platinum Price and LBMA Palladium Price from 1st December onwards and the Johnson Matthey London a.m. Rhodium Price.
• Throughout the tables, totals may not add due to independent rounding.
TERMINOLOGY: ”-”
Not available or not applicable.
”0.0”
Zero or less than 0.05.
”dollar”, “$”
U.S. dollar unless otherwise stated.
“3PGM”
Platinum, palladium & rhodium
”4E”
Four elements: platinum, palladium, rhodium and gold (3PGM+Au).
”6E”
Six elements: 4E plus iridium and ruthenium (5PGM+Au).
Estimates of supply include mine production and the recycling both of scrapped autocatalysts and old jewellery, but exclude contributions from above-ground stocks, such as supplies from stocks controlled by state institutions in Russia. Demand estimates are net of recycling with the exception of autocatalyst and jewellery, where gross demand is shown - i.e. the total amount of metal absorbed to these two sectors. Estimates of recycling from scrapped autocatalysts and jewellery are shown separately as part of supply given their scale and potential for change. Estimates of demand exclude the movements of any above-ground stocks held within the specified industries, for example any changes in stocks held by the automotive industry.
By simple arithmetic, this leaves either a “Physical Surplus or Deficit” (in previous publications “Gross Surplus or Deficit”) before any movements in above-ground stocks are considered. This is a critical measure of the underlying fundamentals of platinum and palladium and indicates the extent to which fabrication demand may have depended on the release of above-ground stocks, or otherwise. At the same time, this also indicates the change in global aboveground stocks.
Unless otherwise stated, all references to “above-ground stocks” of platinum and palladium refer to stocks of refined metal, of a form and quality accepted as good delivery in the London and Zurich market and the world’s principal commodity exchanges. Our supply/demand tables also show “Estimated Movements in Stocks”. These specific movements relate only to above-ground stock holdings for which reasonable estimates of movement can be made and attributed. A listing and breakdown of these appears in the more detailed tables in the Appendices section of this Survey.
Having allowed for the Estimated Movements in Stocks as defined above, the “Net Balance” (previously “Residual Surplus or Deficit”) is arrived at by deduction. A negative Net Balance implies the extent to which other above-ground stocks, including those held by financial institutions and/or investors, were released to meet fabrication demand. Conversely, positive Net Balance implies the extent to which these other above-ground stock holdings were augmented. However, this should not be construed as indicating the change in global above-ground stocks. For this, please refer to the reported Physical Surplus or Deficit.
GFMS platinum GROUP METALS survey 2016
1. Summary and outlook Introduction
In addition to the fundamental aspects described later, pricing has been hit hard by investor selling (as has the broader commodities complex); platinum investors reduced ETF positions by 0.26 Moz (8.1 t) and palladium World platinum supply and demand
(000 ounces) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 % Supply Change Mine Production South Africa
5,447
5,075
4,676
4,603
4,750
4,740
4,182
4,368
3,220
Russia
948
917
830
793
785
818
803
741
687
North America
366
324
342
294
238
389
338
337
Others
262
267
309
358
411
457
472
565
7,024
6,584
6,156
6,048
6,183
6,404
5,796
6,011
4,856
832
909
1,006
785
902
994
924
1,045
1,087
Total Mine Production Autocatalyst Scrap Old Jewellery Scrap Total Supply
4,522 40% 721
5%
397
365
-8%
552
550
0%
6,158
27%
931 -14%
365
560
966
496
522
606
512
491
516
536
4%
8,221
8,053
8,128
7,329
7,607
8,003
7,231
7,547
6,459
7,625
18%
Demand Autocatalysts
3,896 4,047 3,514 2,502 2,918 2,990 2,856 2,843 2,957 3,011 2%
Jewellery
2,210 2,061 1,847 2,678 2,201 2,388 2,585 2,646 2,548 2,456 -4%
Chemical
320 370 340 281 482 486 399 432 595 494 -17%
Electronics
404
397
292
Glass
449
431
507
Petroleum
254 91
252
225
195
505
338
323
169 84
162 (50)
163
167 151 190 163 168 143 126 106 122 100 -18%
Other Industrial
463
472
456
431
494
559
621
649
700
Retail Investment
(22)
23
452
313
95
312
282
141
131
7,887
7,951
7,599
6,714
7,114
7,442
7,388
7,070
7,167
Total Demand
151 -7%
721
3%
474 262% 7,570
6%
Physical Surplus/(Deficit)
334 102 529 615 492 562 (157) 477 (708)
54
Stock Movements
(394)
(402)
281
(574)
(245)
(539)
(1,892)
1,082
210
of which ETF Release/(Build)
(194)
(102)
(384)
(574)
(145)
(239)
(892)
(218)
260
Net Balance
334 (293)
LBMA PM Price (US$/oz) 1,142.55
126
896 (82)
1,302.81 1,577.53 1,203.50 1,608.98
317 (696) (1,415)
375
265
1,721.87 1,551.48 1,486.72 1,385.70 1,052.91 -24%
Source: GFMS, Thomson Reuters; LBMA
5
Summary and Outlook
Average platinum, palladium, & rhodium prices fell by 24%, 14%, and 19% in 2015 on the back of a year unimpeded by industrial action in South Africa and amid a bad year for commodity returns generally. Production of combined platinum, palladium & rhodium (3PGMs) in the country rose by 37% to reach its highest level since 2011. The supply recovery outweighed price-positive demand and scrap developments last year. 3PGMs demand expanded at its fastest since 2011, by 2.3%, to hit a record high of a combined 18.0 Moz (558.3 t). Autocatalyst scrap fell 12%, the biggest drop since 2009. Anecdotally, this decline has been driven more by low steel prices than by weaker PGM prices, though both have weighed on spent autocatalyst collection rates.
saw net sales of 0.73 Moz (22.6 t) over the year. Also important for platinum’s poor performance though has been the boost in production and apparent resilience of the mining industry (aided by equity investor support) from South Africa, while sentiment towards demand was hit by the EPA’s publicised discovery of emissions test violations in passenger diesel vehicles produced by Volkswagen. The dent in diesel’s reputation in light of the scandal pushed platinum prices lower as the market contemplated the metal’s future demand prospects. Diesel vehicles accounted for 64% of platinum autocatalyst demand from the light duty vehicle market last year, which compares to 17% for palladium and 27% for rhodium. Rhodium, meanwhile, whose supply is even more geographically concentrated in South Africa than platinum, was also adversely affected by a 1% decline in autocatalyst demand. This decline follows years of reduced demand on the back of thrifting as car makers strived to reduce their reliance on the costly metals. Palladium prices, while suffering alongside its sister metals, were buoyed by more robust growth
GFMS platinum GROUP METALS survey 2016
Summary and Outlook
in autocatalyst and chemical demand; both of these sectors have continued to replace portions of platinum requirements with palladium. Amid the backdrop of a continued waning commodity cycle and the implementation of negative interest rate monetary policies in Japan and other countries last year, currency depreciation in South Africa also heavily influenced PGM prices in 2015. The South African rand depreciated by 26% from the end of 2014 to 8th December. This was driven in part by a strengthening U.S. dollar on the prospect of increased interest rates in the country but also on the back of diminishing expectations for South African economic growth and confidence in its political arena. With attention periodically on the cost of production from South African mines, the weaker rand has certainly lowered the dollar-denominated ‘price floor’ of platinum implied by such assessments.
Platinum in 2015 A rebound in mine production last year pushed the platinum market back into a marginal Physical Surplus, despite improved demand. The scale of the surplus at the Net Balance level was exacerbated by stock movements.
Following the pronounced suppression of platinum mine production in 2014 owing to the five-month strike, output recovered by 27% to stand at 6.16 Moz (191.5 t) in 2015. In South Africa supply increased by 40% to 4.52 Moz (140.7 t). Producers’ concerted efforts to recover production volumes were maintained and an additional boost came from a release of in-process inventory by Amplats last year. Restructuring and mine suspension in light of weak dollar prices remained largely speculation with little action to close mines, and much greater emphasis on stringent capital allocation. As detailed on page 25, rand weakness and ‘normal’ production volumes pushed costs down by 23% last year and in the case of South Africa, back to a small positive margin at the Total Cash Cost level. Global platinum jewellery scrap rose 4% last year to reach its highest level since 2011 of 0.54 Moz (16.7 t), driven solely by a 21% surge in Chinese scrap supply. The increase in China was driven by a combination of factors including increased collection points, a rise in distress selling, and upgrading of old items for new. Elsewhere, lower platinum prices saw recycling volumes fall sharply last year with Japanese and North American scrap flows slipping to near decade-low levels.
World palladium supply and demand (000 ounces) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 % Supply Change Mine Production South Africa
2,857
2,677
2,365
2,481
2,646
2,686
2,391
2,432
2,008
2,653 32%
Russia
3,164
3,049
2,701
2,677
2,722
2,704
2,624
2,527
2,582
2,575
0%
North America
1,024
995
908
688
726
959
953
934
978
925
-5%
310
329
407
475
518
512
528
575
568
561
-1%
7,355
7,050
6,381
6,321
6,612
6,861
6,497
6,468
6,136
6,713
9%
749
957
1,200
1,077
1,307
1,514
1,472
1,587
1,813
1,605 -11%
Others Total Mine Production Autocatalyst Scrap Old Jewellery Scrap Total Supply
234
185
192
116
179
248
223
230
248
266
7%
8,338
8,192
7,772
7,515
8,098
8,623
8,191
8,286
8,197
8,584
5%
Demand Autocatalysts Jewellery
4,433 4,793 4,484 4,022 5,271 5,560 6,140 6,339 6,602 6,888 4% 1,281
1,281
1,295
674
595
602
590
567
546
525
347 -27%
475
447 -6%
585
410 388 374 305 368 383 377 410 395 401 2% 1,275 1,347 91
1,240
1,451
83
100
1,487 1,500 103
109
1,378
1,358
110
117
1,209 -11%
Other Industrial
86
Retail Investment
135 45 94 170 80 61 37 38 45 45 -1%
Total Demand
91
511
478
Chemical
1,219
620
797
Dental Electronics
615
1,110
116
-1%
8,148 8,488 8,305 7,532 8,657 8,834 9,304 9,311 9,469 9,452 0%
Physical Surplus/(Deficit) Stock Movements
190
(296) (533)
(17) (559)
(211) (1,113) (1,025) (1,272) (868)
1,613
620
899
593
(289)
1,282
(148)
(300)
(299)
577
of which ETF Release/(Build)
(280)
(381)
(507)
(1,089)
532
(448)
(0)
(899)
727
Net Balance
1,803
LBMA PM Price (US$/oz) 320.00
324 354.78
366
352.25
577 (848) 1,072 (1,261) (1,326) (1,571) (290) 263.22
525.24
733.63
643.19
725.06
803.23
691.63 -14%
Source: GFMS, Thomson Reuters; LBMA
6
GFMS platinum GROUP METALS survey 2016
World platinum supply
World platinum demand
Jewellery Scrap
10000
Autocatalyst Scrap
Platinum Price
Mine Production
Retail Disinvesment
Autocatalysts
2000
400
0
0 2006
2008
2010
2012
2000
2014
Source: GFMS, Thomson Reuters
Autocatalyst scrap declined by 14% in 2015, giving up the gains of the last two years to reach 0.93 Moz (29.0 t). The more mature markets of North America and Europe saw hefty double-digit falls last year as lower steel and PGM prices impeded the flow of scrap down the supply chain. In China, and other emerging markets where recycling is still in its infancy, scrap collection saw healthy year-on-year gains. Turning to demand, platinum consumption in autocatalyst applications rose by 2% to 3.0 Moz (93.7 t) last year. In spite of continued positive sentiment, there have been considerable regional and sectoral differences in terms of performance. The off-road sector recorded a 24% increase, albeit from a low base, followed by the most important sector for platinum demand, light duty diesel, which saw a 5% uptick. In absolute volumes, Europe’s continued robust light vehicle production served platinum well last year coupled with the increased focus of OEMs towards emission compliant aftertreatment options that can stand the test of time in real driving conditions. Platinum jewellery fabrication declined by 4% to an estimated 2.46 Moz (76.4 t) in 2015. China accounted for the bulk of this loss as economic pressures limited consumer spending on discretionary items. Resistance by retailers to reduce sticker prices as platinum traded lower also impacted demand. Elsewhere, European demand also suffered due largely to substitution losses and weaker export demand. In contrast, Japanese demand picked up marginally due to a shift away from gold to platinum, while North American offtake benefitted from a more robust economy. Aside from the glass sector, which returned to being a net consumer of platinum last year, all major industrial segments were weaker in 2015. We estimate that
Thousand Ounces
Summary and Outlook
800
2400
Retail Investment
1600 6000 1200 4000
US$/oz
4000
US$/oz
1200
Platinum Price
Jewellery
8000
1600 6000
Industrial
10000
2000
8000 Thousand Ounces
2400
800 2000
400
0
0 2006
2008
2010
2012
2014
Source: GFMS, Thomson Reuters
platinum consumed in the chemical sector declined by 17% to 0.49 Moz (15.4 t), driven by a significant contraction in paraxylene (PX) capacity. A sharp drop in Japan led demand for platinum in the petroleum sector lower, retreating by 18% in 2015, while electronic demand dropped due to economic weakness and a shift from traditional PCs to items with solid-state drives. Although investment demand for ETFs was weak over the year with a net redemption of 0.26 Moz (8.1 t) platinum bullion for retail investment had a stellar year, rising more than three-fold to an all-time high of 0.47 Moz (14.8 t), with much of the growth centred in the Japanese market.
PALLADIUM in 2015 Palladium’s Physical Deficit eased appreciably in 2015 but remained large, at 0.87 Moz (27.0 t). Adjusting for stock movements (from ETF redemptions), the Net Balance shrank to a deficit of just 0.29 Moz (9.0 t). Mine production of palladium grew by 9% to total 6.71 Moz (208.8 t) last year. Concomitant with platinum and rhodium, the overriding factor was a full year of operations from South Africa’s mining industry. The downward production delta for palladium was smaller than for platinum in 2014 for a number of reasons which made the recovery in 2015 that more shallow, at ‘only’ 32%, but sufficient to lift the country to the world number one position. Russian output was steady while Canadian production dropped by 10%. Autocatalyst scrap supply retreated by a sizeable 11% in 2015 to an estimated 1.60 Moz (49.9 t). Despite the sizable fall, last year was still the second highest level recorded. Weaker metal prices saw recycling in some markets postponed, especially in the developed world,
7
GFMS platinum GROUP METALS survey 2016
World palladium supply
World palladium demand
Jewellery Scrap
10000
Palladium Price
Autocatalyst Scrap
1000
10000
600
4000
400
2000
200
0
Thousand Ounces
Thousand Ounces
6000
1000
8000
800
6000
600
4000
400
2000
200
0 2010
Palladium Price
2012
0
2014
0 2006
Source: GFMS, Thomson Reuters
US$/oz
800
US$/oz
Summary and Outlook
Mine Production
2008
Retail Investments
Industrial Autocatalysts
8000
2006
Jewellery
2008
2010
2012
2014
Source: GFMS, Thomson Reuters
vehicle sales volumes were supported by continued good access to credit (U.S.), tax breaks (China) or a general improvement in market sentiment (Europe). Sustained substitution from platinum into palladium in the heavy duty sector also played a positive role for palladium demand, although the rate of substitution has slowed.
with recycling volumes in North America, Europe, and Japan all declining in 2015. In contrast, higher loadings levels continue to filter through into higher scrap flows in China and our Other Regions category, both recording double-digit increases. Palladium jewellery scrap supply rose by 7% in 2015 to 0.27 Moz (8.3 t), a new historical high. Growth in palladium scrap sales was driven by China alone as weaker metal prices dragged down recycling volumes in other key markets.
Demand for palladium in industrial applications was broadly weaker, with total combined demand falling 7% to a 10-year low of 2.17 Moz (67.6 t). A double-digit percentage fall in electronics offtake, combined with 7% drop in petroleum demand helped offset a 2% gain in palladium used in chemical applications. Lower palladium prices failed to arrest the slide in dental offtake which declined by 6% in 2015 due primarily to the continued substitution losses in all key markets.
Palladium demand in autocatalyst applications reached 6.89 Moz (214.2 t) last year, an annual increase of 4%. Contrary to platinum in autocatalyst applications, all regions but Japan recorded heathy gains. Global gasoline World rhodium supply and demand
(000 ounces) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 % Supply Change Mine Production South Africa
636
Others
145 143 131 132 131 149 153 154 149 151 1%
Total Mine Production
782
801
762
815
784
796
741
752
598
775
29%
Autocatalyst Scrap
177
203
233
193
232
265
244
272
321
282
-12%
959
1,004
995
1,008
1,016
1,061
985
1,024
919
1,057
15%
Total Supply
658
631
683
653
647
587
599
449
624
39%
Demand Autocatalysts
826 995 934 740 784 748 78
716 675 667 -1%
Chemical
65
73
73
69
81
84
88
Glass
70
76
60
34
103
129
64
92
51
48
-6%
Other
46
30
77
25
38
35
71
84
95
124
31%
1,008
1,173
1,144
868
996
990
956
977
908
929
2%
11
128
Total Demand
71
741
90 3%
Physical Surplus/(Deficit)
(49)
(169)
(149)
140
20
70
29
47
ETF Release/(Build) (17) (36) (49) (4) 5 Net Balance JM London Price (US$/oz)
(49)
(169)
(149)
140
20
53
(7)
(2)
7
133
4,557
6,191
6,564
1,595
2,453
2,021
1,275
1,064
1,173
952
Source: GFMS, Thomson Reuters; Johnson Matthey
8
-19%
GFMS platinum GROUP METALS survey 2016
World rhodium supply & demand Supply
1400
Autocatalyst scrap
Non-Autocatalyst
Mine Production
Autocatalyst Rhodium Price
1000
12000 10000
6000 600 4000
400
2000
200 0
0 2006
2008
2010
2012
2014
Source: GFMS, Thomson Reuters; Johnson Matthey
Jewellery demand fell for the seventh consecutive year, by 27% to 0.35 Moz (10.8 t), the lowest level since 2002. China was again the chief culprit as demand there plummeted 70% as several fabricators left the industry.
rhodium in 2015 The rhodium market is the smallest and least liquid among the main three PGMs. Its supply and demand profiles are more concentrated compared to platinum and palladium, which exposes it to more country and industry-specific risk. To illustrate, South Africa accounts for 81% of mine supply, which compares to South Africa’s 73% share of platinum and just 40% of palladium. Because rhodium is a less liquid market, its price is more volatile and historically has seen larger price swings. Since rhodium’s hike to $10,000/oz in 2008, the price has been very weak. In 2015, rhodium prices dropped 19% to average $952.29/oz. After prices surged to record levels eight years ago, users focused on reducing rhodium needs in an effort to lower their exposure to it. Rhodium was thrifted out of heavy duty trucks globally and, to a lesser extent, out of light duty trucks in the United States, which makes up roughly half of passenger car sales in the country. In the chemical and glass sectors, rhodium is alloyed with other PGMs as a strengthening agent. Rhodium usage in these applications was reduced too. Last year’s price decline was due to a stronger increase in supply relative to demand, which resulted in the largest market surplus since 2009. Supply rose 15%, driven by a 39% surge in South African mine output. The primary supply increase more than offset the 12% contraction in autocatalyst scrap. Meanwhile, demand rose a modest 2% last year. Autocatalyst demand dropped 1%, continuing a declining trend that emerged in 2011.
Rhodium’s main demand segments, auto, chemical and glass, made up 87% of demand last year. The “other” segment includes demand for jewellery, spark plugs, thermocouples, retail investment products, and other applications. This segment of demand can vary widely because jewellery and investment are very price sensitive sources of demand. The introduction of small rhodium bars in recent years has helped grow demand from this segment and was the main driver of the 31% increase in 2015 from the “other” segment. The market surplus represents above-ground stock changes among dealers, banks, users, and the institutional investment community. Given last year’s price decline, much of the surplus may have been absorbed by dealers and banks rather than large investors. It should not be ruled out that investors have added to holdings though as a bargain opportunity. While GFMS has kept a pulse on the rhodium market for as long as it has produced platinum and palladium market statistics, this survey marks the formal launch of our rhodium market coverage. The table (below left) is the culmination of years of market research and analysis.
Outlook for 2016 GFMS forecasts the platinum market to return to a small physical deficit this year and palladium’s deficit is forecast to deepen in 2016. In the case of platinum in particular this will be driven by lower mine supply: There will be little addition from new projects in the development pipeline while the headwind of mines’ reduced capital spending is expected to start to weigh. The extreme pricing action of commodities over the past six months though highlights the extent to which macroeconomic factors are driving trading behaviour. Individual commodity fundamentals, even for industrial metals, have taken a back seat to the overriding factors of U.S. monetary policy and trajectory of the dollar, as well as continuing attention on Chinese growth and the extent to which this evolution can be ameliorated by stimuli. The GFMS forecast sees broad support from extremely gradual U.S. monetary tightening, paving the way for higher prices in 2016, particularly for palladium. More detailed outlooks are produced by the GFMS team at Thomson Reuters, which presents its supply and demand forecast data, commentary, price forecasts and Mine Economics data to customers via Thomson Reuters Eikon subscriptions. For more information please visit: financial.tr.com/eikon-metals.
9
Summary and Outlook
8000
800
US$/oz
Thousand Ounces
1200
Demand
gfms platinum group metals Survey 2016
2. PGM PRICES Platinum & Palladium
Palladium prices last year averaged $692/oz, 14% lower than in 2014. This stemmed from a sharp contrast in market fundamentals compared to 2014, a year in which a deep market deficit provided price support. The absence of labour unrest in South Africa led to a 32% increase in output, reaching 2.7 Moz (83 t), which coupled with a 2% rise in scrap led to an 5% gain in supply of 8.8 Moz (274 t). Though demand remained unchanged, strong ETF outflows left the net balance at 87 koz (3 t); a sharp contrast against 2014. The correlation between platinum and palladium continued to weaken over 2015. Though this provided investors with an alternative to the continued price erosion in platinum prices for the first half of the year and so the strong sell-off in the fourth quarter caused both metals to trade in tandem again. On the back of renewed Grexit fears and the discontinuation of the Swiss franc’s cap against the euro, platinum prices started 2015 constructively with a pGM Prices: South African Rand Platinum
600
3,000
Platinum remained range bound during April and May, trading between $1,115/oz and $1,175/oz on low turnover. Choppy trading held the 22-day historical volatility above first quarter levels until 19th May, when the ECB announced plans to accelerate its bond buying program. As a result, the U.S. dollar extended gains with the 10year U.S. Treasury yield hitting a one-month high on 8th June. At end-June, the net money manager position stood at 10 tonnes, or 73% below the January high as short bets surged and long positions remained largely unchanged. In July, the sell-off gained further momentum as fears of a Greek default and worries over the Chinese economy spread. On 17th July, platinum broke below $1,000/ oz fuelled days earlier by hawkish comments from Fed Chair Janet Yellen about the possibility of a 2015 rate hike. Yet, on 24th July, the sell-off came to a halt following Lonmin’s announcement to cut 100 koz of production over the next two years to support prices. However, before the end of the following week, the sell-off resumed, as the net long position across money managers remained unchanged at 10 tonnes despite a 3.3% inflow in platinum-backed ETFs by month-end.
Palladium Rhodium (RHS)
500 400
2,000
300
1,500
200
1,000
100
500
2006
2008
Source: Thomson Reuters
10
2,500
2010
2012
2014
2016
Rand/kg (thousands)
Rand/kg (thousands)
pGm Prices
In 2015, the platinum price posted the largest single annual drop since 2009, declining by 24% to an average of $1,053/oz; the lowest annual average in ten years. Intra-year, an episode of low volatility during the first half of 2015, at 15%, was followed by a second half of high volatility as news from Lonmin, Amplats, VW, and a stalling global economy rattled the markets. The platinum market remained cautious at the beginning of the fourth quarter, but weak Chinese economic data and fears that a Fed rate hike would trigger a sell-off in the precious metals complex, made platinum the worst performer in 2015.
$100/ oz rally to $1,285/oz by 21st January. However, the lack of bullish bets in palladium left prices $13/oz below the start of the year at $778/oz. In the following weeks, the attention turned to the ECB’s €1Tr bond buying programme, which coupled with strong U.S. non-farm payroll data, fuelled a sell-off across all precious metals. Platinum broke $1,200/oz in mid-February, finding support at $1,100/oz a month later on dovish comments from the Fed regarding the outlook for the U.S. economy. In contrast to a robust labour market, a deceleration in the housing market put into question the appropriate timing of an interest rate hike. Between mid-February and mid-March, money managers on Nymex liquidated 9 tonnes, or 28%, off platinum’s position, and added 5 tonnes, or 9%, to palladium’s net long position.
Spot prices recovered in August on a short-covering rally that took platinum prices from $971/oz to $1,028/ oz. Nevertheless, bullish U.S. consumer confidence data boosted the U.S. dollar, bringing prices to $1,003/oz by month-end. On 8th September protests at Amplats’ Mogalakwena broke out, costing the group an estimated 8.6 koz of platinum production before operations resumed on 14th September. Yet upbeat wage data and a further drop in unemployment capped gains as the U.S. dollar remained strong.
gfms platinum group metals survey 2016
Precious metals price performance
Au Ag Pt Pd Rh
2014
1,266 19.07 1,386
803 1,172
2015
1,160
692
Change (yoy)
-8.4%
15.68
1,053
955
-17.8% -24.0% -13.9% -18.5%
Source: GFMS, Thomson Reuters; LBMA; Johnson Matthey
On 18th September, Volkswagen was caught in the middle of a diesel emissions scandal and told to recall 482,000 cars from the United States. Two days later, the company admitted wrong doing, causing its share price to collapse after the opening bell at the Frankfurt Stock Exchange on 21st September. Over this period, platinum shed $16/oz to $972/oz, while palladium lost $9/oz to $602/oz.
Ruthenium & Iridium Prices
rhodium Rhodium prices averaged $955/oz last year, 19% lower than in 2014 due to a stronger increase in supply relative to demand. The contraction in autocatalyst supply was offset by a 39% increase in mine output from South Africa, which left the net balance at a surplus after a modest 2% increase in demand. Automotive catalytic converters account for the majority of rhodium demand. News mid-year about weak industrial demand and below market offers from PGM recyclers caused prices to fall from $1,070/oz in end-May to $760/oz in end-September. The adoption of stronger emission standards did little to support prices over 2015 as the increase in demand appeared to be matched by supply. After a brief recovery in October, prices continued trending downwards as a sell-off across the precious metal complex gained full force. Rhodium ended the year at $660/oz.
from only focusing on purely high performance products to the mass market. This was especially the case in Japan, where
In a year without a single daily price rise and on the back of
iridium spark plugs make up 50% of the market share for
weak industrial demand, Ruthenium prices suffered their
spark plugs. The other use of the metal is in high-temperature
seventh consecutive annual price decline in 2015. The price
crucibles used in the production of crystals for LED displays
started at $58/oz but declined gradually to reach an annual
and although demand remained healthy, the very high
low of $42/oz in late July, the lowest level since the start of
recycling rate undermines Iridium’s market balance.
2004. Since then the price has remained flat. ruthenium & iridium prices
Aside from its main use in electronics, ruthenium plating on jewellery, with a distinctive jet black polished look, is
1200
200
900
150
600
100
progressively becoming more prominent. However, the
its price drop over the last seven years. After starting the year at $540/oz, Iridium prices rose to $580/oz by mid-February 2015. Prices maintained this level
300
until mid-June when they fell. It was not until October that
Iridium
Ruthenium (US$/oz)
hard disk drives and thrifting of ruthenium have contributed to
Iridium (US$/oz)
increasing popularity of ‘cloud storage’, the decline in sales of
50
Ruthenium
prices started to rise again reaching $520/oz; 4% above the annual low of $500/oz. Despite lower prices, iridium demand improved driven by the move of iridium alloy spark plugs away
0 Jan-11
0 Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Source: Thomson Reuters; Johnson Matthey
11
Pgm Prices
Over the first two weeks of October, poor U.S. macroeconomics data drove speculation in the futures market adding 17 tonnes, or 125% by month-end. However, with the emissions scandal at full force and ETF flows going in the opposite direction to net managed money, the price fall in November brought platinum prices to $827/oz, its lowest level since December 2008. The price fall caused palladium to revisit August’s low of $524/oz, but a slowdown in the liquidation of palladium’s net long position provided some support against further losses.
In the lead up to December’s FOMC meeting, prices were range bound as investors remained on the sidelines and the Dollar Index (DXY) hovered near a 1-year high. On 16th December, the announcement of the first interest rate hike in nine years caused platinum prices to drop by $28/oz to $848/oz. Platinum ended the year at $868/ oz, while palladium finished the year at $555/oz.
12
3
4
5 6
Feb
Mar
(01/04/15): Short-covering rally triggered by weak U.S. employment data. Palladium finds support at $725/oz.
(15/01/15): SNB abandons cap on the franc. (10/03/15): Platinum and Palladium drop as DXY nears 12-year high. (27/03/15): Palladium breaks below support level at $750/oz; sell-off triggered.
10
9
8
7
6
May
7
8
9
Jun
10
(11/06/15): Glencore completes divestment of its 23.9% stake in Lonmin.
(19/05/15): ECB announces it may accelerate its euro bond buying-program; euro tumbles.
(18/05/15): Norilsk announces plans to complete palladium deal with Central Bank of Russia before end-2015.
(04/05/15): Palladium holds gains on strong sales of large vehicles.
(22/04/15): Strong U.S. housing data; fears over a June rate hike loom. Tensions in Yemen ease.
Apr
News leads to support for prices News leads to pressure for prices
Source: GFMS, Thomson Reuters
10 5
4
3
2
2
(14/01/15): Palladium fails to break above $820/oz for a third time in 2 months; sell-off begins.
1
15
14
13
12
11
14
15
16 17
Aug
Sep
(18/09/15): VW told to recall 482,000 vehicles in the United States
(10/08/15): China rattles market with surprise yuan devaluation. (25/08/15): U.S. consumer confidence hits 7-month high; China cuts rates. (09/09/15): Amplats agrees Rustenburg sale to Sibanye for $331 M.
19
18
17
16
Nov
19
Dec
20
(19/11/15): Lonmin rights issue approved with 87% support.
(02/11/15): Rand denominated platinum prices lead to profit taking across South African funds; strongest monthly ETF liquidation seen YTD.
(13/10/15): VW plans to recall around 8.5 million vehicles in the EU. (22/10/15): Amplats announces plans to postpone major investments until 2017.
Oct
28% ZAR devaluation over 6 1/2 month period
(24/07/15): Lonmin announces plans to close Hossy and Newman mine shafts, and cut platinum production by 100,000 oz over the next two years.
Jul
11
12
13
18
24
23
22
(20/01/16): Palladium finds support near a five year low at $486/oz. (08/02/16): Platinum trades in tandem with gold; breaks above 100 day MA.
(16/12/15): Fed raises rates for the first time since 2006. (22/12/15): U.S. Q3 GDP grows at 2.0%
27
(21/04/16): Amplats’ reports Q1 2016 refined platinum production 52% below last year due to an output disruption at the company’s PMR. Platinum finds resistance at $1,040/oz. Palladium rises above $600/oz after breaking 200 day MA.
(21/03/16): Palladium meets resistance at $600/oz.
400
500
26
Apr
27
600
(07/03/16): Platinum meets resistance at $1,000/oz.
26
700
800
25
25
Mar
21
Feb
24
(29/11/15): Platinum drops to a seven year low; net long position across money managers drops to 8 t from 35 t a month earlier.
Jan 16
23
20
21
22
Palladium
Platinum
900
Palladium US$/oz
1
700 Jan 15
800
900
1,000
1,100
1,200
1,300
1,400
PLATINUM AND PALLADIUM PRICES
Platinum US$/oz
PGM PRICES
GFMS PLATINUM GROUP METALS SURVEY 2016
gfms platinum group metals survey 2016
PLATINUM AND PALLADIUM PRICE CORRELATIONS Thomson Reuters GFMS believe the study of correlation coefficients to be highly useful, not only as an indication of underlying themes that may influence the market, but also to confirm economic theory with empirical evidence. It must be noted, however, that the existence of either a positive or inverse correlation between two assets is not sufficient in itself to establish direct causality. The close relationship between platinum and palladium is
quarterly correlation coefficients (on log-returns in daily prices) 2014 2015 2015 2015 2015 2016 Q4 Q1 Q2 Q3 Q4 Q1 Platinum-Palladium -0.01 0.09 0.78 0.31 0.91 0.78 Platinum Gold
0.77 0.92 0.74 0.57 0.94 0.93
US$/Euro Rate
0.69
0.75 -0.49
-0.11
0.72
0.68
CRB Index
0.50
0.45
0.02
0.64
0.81
0.54
Oil (WTI)
0.57
0.05 -0.52
0.51
0.77
0.63
Thomson Reuters Base Metals Index 0.21 0.14 0.70 0.60 0.92 0.88
borne of their chemical characteristics. They are in the same
Palladium
group of the Periodic Table, sharing similar industrial uses,
Gold
especially as catalysts. The automotive sector dominates
US$/Euro Rate
-0.47
CRB Index
-0.63 0.33 0.20 0.68 0.86 0.83
Oil (WTI)
-0.64
platinum and palladium usage in autocatalysts, representing 40% and 73% of gross platinum and palladium global usage respectively in 2015. Unlike demand, the supply of both metals is more diverse and so are the underlying fundamentals.
0.14 -0.13 0.55 0.45 0.95 0.62 0.16 -0.25 -0.35 0.24 -0.15
0.70
0.81 0.84
0.57 0.86
Thomson Reuters Base Metals Index -0.39 0.03 0.81 0.53 0.95 0.79
Pgm Prices
Source: GFMS, Thomson Reuters
Contrary to what history suggests, the platinum and palladium correlation was close to zero during the first quarter of last year,
quarter of last year. That strong trend continued this year
as the platinum price tumbled while palladium rallied. In early
as investors refocused on the Fed’s interest rate policy time
March, the platinum:palladium ratio fell to 1.40, the lowest level
table, directly influencing the strength of the U.S. dollar. After
since April 2002. For the first time since March 2014, platinum
the non-event of the Fed’s September meeting, the hawkish
traded at a discount to gold. The relatively poor platinum price
October FOMC statement caught the market by surprise, when
performance was due to a decline in Chinese imports combined
investors realised the possibility of another rate hike during the
with a faster recovery in South African mine output, following
final meeting of the year. Following that statement, the dollar
the five month labour strike. Palladium’s advance was driven by
strengthened and was trading near a three-month high, in turn
strong auto sales from China during the first quarter.
putting pressure on the commodities spectrum. During the start of this year, disappointing economic data from the U.S.,
Platinum typically has a closer correlation with gold than
combined with a more dovish tone from the Fed, convinced
palladium. This stems in part from platinum’s proportionately
investors to re-align their expectations on the interest rate
higher jewellery demand, which used to be the largest market
policy timetable. The continued relatively strong correlation
segment (especially in Japan) until the automotive sector took
among different commodities and the euro suggested that the
over the top spot. Over the 1992-2002 period, jewellery demand
Fed’s interest rate timetable would continue to heavily influence
averaged 43% of total platinum offtake, considerably higher
price trends across various asset classes throughout the year,
than the 32% share last year. Palladium’s role in jewellery,
including those of platinum and palladium.
which flourished in the late 1990s and early 2000s, has retreated substantially, accounting for less than 4% of global
platinum, palladium and other commodities
demand in 2015. 160
during the first half of last year. However, following the heavy price slump in 2014, investors turned more bullish on oil, driven by the continued decline in drill rigs in the United States. Consequently, the oil price posted a 25% gain quarter-onquarter during the second quarter of 2015, as disagreements in the discussions on Iran and its nuclear program with the international establishment hampered Iran’s oil exports. As a result, the correlation among all commodities revived in the third quarter, and was particularly strong during the final
Index, 2nd January 2014 = 100
Both platinum and palladium’s correlation with oil was low
Platinum
CRB
Palladium
Oil (WTI)
125
90
55
20 Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Source: Thomson Reuters
13
GFMS PLATINUM GROUP METALS SURVEY 2016
3. Investment • Total Identifiable Investment in platinum, which includes
early November resulted in investor long liquidation, once again dragging down the net long position to its second lowest point in the year on 28th October.
retail investment and ETF inventory build, dropped by 39% in 2015 to 214,000 ounces (6.7 t). In indicative value terms, investment demand amounted to $225 million.
Turning to palladium, and net investor positions over the first half of the year were extremely volatile, shifting between net long and net short positions, driven directly by yen-dominated palladium price movements. However, despite 2015 starting the year in a net short position of 8,700 ounces (-0.3 t), by year-end, net positions rose by 18,400 ounces (0.6 t), to a long of 9,800 ounces (0.3 t). This was solely a result of the significant pick up in net long positions from late May to end-July, driven by a 21% fall in the palladium price, which resulted in net long positions reaching their highest level since August 2013.
• The decline in our platinum Identifiable Investment figure was solely attributable to net outflows recorded from ETF investors, in which 260,000 ounces (8.1 t) of outflows were recorded over the period. Meanwhile, a surge in retail investment for bars and coins, driven by investors’ bargain hunting, somewhat limited the decline.
• Total Identifiable Investment for palladium turned negative in 2015, to total 683,000 ounces (-21.2 t), its first net negative position since 2011. Again, investors’ net outflows in ETFs were responsible for the decline.
CFTC reports on managed money positions on NYMEX, which include both futures and options, provide a good proxy for investor activity on the exchange. Looking to platinum in 2015, by year-end, net long managed money positions had fallen by 49% to reach 0.5 Moz (14 t), reversing the moderate increase in net long positions recorded in 2014, demonstrating the negative investor sentiment felt towards the metal last year. By the end of the first quarter of 2015, net long positions had declined by 184%, driven by long liquidation. However, as the year went on, fears over a slowdown in global economic growth saw investors, in anticipation of lower prices, pile back into short positions. By 21th July, short positions had reached 1.5 Moz (47.5 t), their highest level in our records. In the final quarter of the year, despite a brief recovery in the platinum price in October, net investor long positions entered a decline once again, falling to a low of 0.25 Moz (8 t) by 24th November, dragging down platinum prices to their lowest levels since 2009. Meanwhile, similar to platinum, net long positions for palladium declined in 2015, falling by 44% or 1 Moz (35.1 t) to 0.87 Moz (27.0 t) driven largely by a build up in short positions, with net longs reaching their lowest level since August 2012.
• Meanwhile, rhodium ETF positions fell by 5% in 2015, to total 100,000 ounces (3.1 t), its lowest level since 2012.
Investment
commodity exchanges Net investor positions on TOCOM futures are used to analyse investment activity on the exchange. Starting with platinum, and by year-end 2015, net long positions had fallen by 6% or 27,000 ounces (0.8 t). While this may at first look like an indication of a lack of investor interest, the analysis of intra-year developments reveals that the period between late May and July saw a rapid increase in investment demand. Net long positions soared by approximately 169,000 ounces (5.3 t) or 35% during the period, to hit a fresh high of 656,000 ounces (20.4 t) on 6th July. This was largely driven by bargin-hunting purchases on the decline in the yendenominated platinum price, which fell by 6% over the period. The recovery in net long positions from the beginning of the year, in which net longs fell to a six month low on 26th January of 320,000 ounces (10.0 t), however, were short lived, as a brief rally in the yen denominated platinum price over late October and identifiable investment* (000 ounces) 2012
2013
Platinum 2014
2015
Change
Palladium 2012 2013 2014 2015 Change
Retail Investment
282
141
131
474
262%
37
38
45
45
Exchange Traded Funds
239
892
218
(260)
n/a
448
0.1
899
(727)
n/a
Total Identifiable Investment
521
1,033
349
214
-39%
485
38
944
(683)
n/a
Indicative Value $M**
809
1,536
483
225
-53%
313
28
758
(472)
n/a
*Excludes investment activity in the futures and OTC markets. **Indicative value calculated using annual average volume and prices. Source: GFMS, Thomson Reuters
14
-1.1%
GFMS PLATINUM GROUP METALS SURVEY 2016
Net investor positions on the Tocom and Nymex (end-period; positive represents net longs) H1.14 TOCOM Futures Contracts - equivalent in ounces (000) NYMEX Futures Contracts - equivalent in ounces (000) Source: TOCOM, CFTC
Platinum H2.14 H1.15
H2.15
Palladium H1.14 H2.14 H1.15
H2.15
28,374
29,607
38,644
27,932
746
(548)
906
608
456
476
621
449
12
(9)
15
10
35,944
17,898
9,363
9,052
19,941
19,970
10,237
8,690
1,797
895
468
453
1,994
1,997
1,024
869
Total volumes on the Shanghai Gold Exchange (SGE) declined by 12% to 0.96 Moz (30.1 t) last year. The decrease was driven by weakening economic sentiment. Additionally, investors were concerned about the 17% VAT on platinum that is applied on trading through SGE, which made investors turn to alternative trading channels. Information received from members of the SGE that are involved in platinum trading, along with our own field research, confirms that the overwhelming majority of the trading on the SGE is related to the sourcing of metals for industrial and jewellery fabrication.
Retail investment
Physical investment in Europe contracted for the fourth consecutive year in 2015, falling by 19% to 7,000 ounces (0.2 t), reaching its lowest level since 2006. Much of the weakness in this market, which is responsible for the smallest quantity of demand regionally, is a consequence of Value Added Tax (VAT) which is levied on sales of bars and coins, therefore investment in this region in mainly in the form of VATexempt metal accounts. In China, purchases of PGM bullion products remained limited last year, due to continued low awareness among the general public of PGMs as alternative investment vehicles, coupled with these bullion products’ high premia at the retail level. In the coin sector, platinum demand soared by 52% in 2015 to 45,000, ounces (1.4 t), the highest sales levels since 2001. North America houses the primary investors for this market, although there is growing interest amongst European and Japanese investors for platinum coins. It is interesting to note that the surge in sales for platinum coins in 2015 took place despite the U.S. Mint not producing any platinum bullion coins during the year when they were the prime contributors of platinum coin sales back in 2001.
Platinum Retail investment 600
Other
Europe
Japan
North America
500
Thousand Ounces
In North America, platinum retail investment increased by 10% year-on-year to an estimated 55,000 ounces (1.7 t). Investment demand for platinum has waned considerably since 2012 as the price has continued to perform poorly, leading to disenfranchisement amongst speculators. However, unlike in 2014 when some investors switched their exposure from platinum to palladium, fuelled by the metal’s attractive supply/demand fundamentals and higher price expectations. The decoupling of palladium from its fundamentals in 2015, where palladium’s price performance was largely driven by the precious metals complex as a whole, resulted in palladium retail
400 300 200 100 0 -100 2006
2008
2010
2012
2014
Source: GFMS, Thomson Reuters
15
Investment
The vast majority of investment in physical platinum and palladium bullion products has historically been concentrated in two countries, namely Japan and the United States. Looking at Japan first, physical investment for platinum jumped more than 8-fold from 2014 levels to an estimated 390,000 ounces (12.1 t) in 2015, the highest level on record. Japan is currently the world’s largest retail market for platinum investment, accounting for 82% of the total in 2015. The main driver for the surge in investment was platinum’s continued price weakness, with the annual average platinum price in yen terms falling by 13% year-on-year, recording a six year low on 11th December. It was reported that when new price lows were reached throughout the year, investors could be seen lining up outside retail stores in search of platinum bars.
investment demand remaining flat year-on-year. Instead, much of platinum’s increase in demand was driven this year by platinum coins.
Platinum, palladium and rhodium Exchange Traded Funds
Net Movements in platinum, palladium & Rhodium ETFs 2014 2015 YoY% Jan-Apr* (000 ounces) 2016
Platinum ETF holdings declined by 9% or over 260,000 ounces (8.1 t) in 2015 to 2.49 Moz (77.4 t) by year-end. Palladium ETF holdings shrank by 24% or over 727,000 ounces (22.6 t) to end the year at 2.34 Moz (72.9 t). In value terms, total holdings declined to $2.2 billion and $1.3 billion, a fall of 35% and 41% year-on-year for platinum and palladium respectively. Given the strong dollar and poor investment sentiment towards precious metals in 2015, a total of $252 million flowed out of platinum ETFs, while more than $477 million escaped palladium ETFs.
Platinum
For palladium ETFs, the bulk of the loss was mainly attributed to ABSA’s NewPalladium fund which recorded a drop of 36% or more than 187,000 ounces (5.8 t). The second largest loss was seen in ETFS USA, which registered outflows of over 181,000 ounces (5.6 t), dropping by 25% year-on-year. Meanwhile, the largest palladium ETF fund, Standard Bank’s AfricaPalladium ETF registered a 13% outflow or over 92,000 ounces (2.9 t) last year, highlighting the weak investor sentiment towards palladium. After a net outflow in the first quarter of 2015, in which palladium ETFs fell by more than 158,000 ounces (4.9 t). The outcome of April’s Federal Open Market Committee meeting, in which expectations of a June interest rate rise were quelled, resulted in holdings of palladium increasing by over 60,000 ounces (1.9 t) by the end of the second quarter. However, in the second half of the year, with palladium’s price failing to hold above $700/oz, ETF holdings once again declined, falling by nearly 630,000 ounces (19.6 t).
218
Palladium Rhodium
(260)
n/a
(14)
899
(727)
n/a
(127)
3.9
(5.4)
n/a
(4.9)
*until 22nd April Source: Respective issuers
ETF fund, ABSA’s NewPlatinum fund, which shrank by 14% or over 150,000 ounces (4.7 t). Other major funds including ETFS London & Australia and ETFS USA also registered double digit percentage losses. One specific fund worth noting is the Mitsubishi Platinum fund in Japan, which grew by a stunning 363% or over 68,000 ounces, ending the year at 87,000 ounces (2.7 t) to sit as the fifth largest platinum ETF. Over the first quarter of 2015, more than 44,800 ounces (1.4 t) of platinum holdings were liquidated; however, this was swiftly reversed over the next two quarters, with platinum holdings enjoying a net inflow of nearly 23,545 ounces (0.7 t), over the period. In the final quarter of the year, an acceleration in the strength of the U.S. dollar resulted in platinum recording its lowest price since 2008, with total platinum holdings having registered a loss of over 307,000 ounces (9.5 t).
Turning to platinum ETFs, and half of the decline in holdings last year was attributed to the largest platinum
Total holdings in rhodium ETFs declined in 2015 to total 100,000 ounces (3.1 t) by year-end, with DB Physical Rhodium ETC fund accounting for almost all (99.5%) of the holdings. However, on 4th March this year, holdings from this previously dominant fund declined, falling by nearly 2,000 ounces (0.1 t). Interestingly, almost the same amount entered Standard Bank’s AfricaRhodium fund, whose holdings surged over 37,000 ounces (1.2 t) on 14th March. As a result, by the end of the first quarter, AfricaRhodium fund is responsible for nearly 40% of total ETF holdings.
Platinum ETF holdings
Palladium ETF holdings
3500
Others*
Absa NewPlatinum Julius Baer
3000
Standard Bank AfricaPlatinum
2500
Price
2500
1500
1000 ZKB
1000
500
500 ETFS London & Australia Jan-12
Jan-13
Jan-14
Jan-15
Source: GFMS, Thomson Reuters; collated from respective ETF issuers’ data *ETF Securities GLTR, WITE, Mitsubishi, DB Physical Palladium, iShares Physical Palladium ETC, Absa NewPalladium, Standard Bank Africa Palladium
16
Others*
Absa NewPalladium Julius Baer
3000
Standard Bank AfricaPalladium
2500
1000
800
Price
2000 600 1500
ZKB
1000 ETFS USA
0 Jan-11
3500
Jan-16
0
400
ETFS USA 500 0 Jan-11
ETFS London & Australia Jan-12
Jan-13
Jan-14
Jan-15
Source: GFMS, Thomson Reuters; collated from respective ETF issuers’ data *ETF Securities GLTR, WITE, Mitsubishi, DB Physical Palladium, iShares Physical Palladium ETC, Absa NewPalladium, Standard Bank Africa Palladium
Jan-16
200
US$/oz
1500
2000
Thousand Ounces
2000
US$/oz
Thousand Ounces
Investment
GFMS PLATINUM GROUP METALS SURVEY 2016
© 2016 Thomson Reuters. S034209 04/16. REUTERS/Yuriko Nakao
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S034209_v3.indd 1
29/04/2016 10:42
GFMS PLATINUM GROUP METALS SURVEY 2016
4. Supply MINE PRODUCTION
• Global refined platinum mine production rebounded by 27% to total 6.16 Moz (191.5 t) in 2015, following the damaging 2014 strike in South Africa.
RHODIUM
• Palladium mine production recovered by 9% last year to 6.71 Moz (208.8 t) thanks to a strong recovery from South Africa, partially offset by weaker Canadian output.
• Global Total Cash Costs (expressed in U.S. dollars) fell by 23% in 2015 to $932/PtEqoz, substantially aided by the tailwind of rand depreciation.
• Total Cash Costs + Sustaining Capex fell by 25% to an average of $1,048/PtEqoz, while All-in Costs (including writedowns) remained elevated at $1,534/PtEqoz.
GFMS’ Platinum Group Metals Survey 2016 marks the first GFMS publication including fundamental research on rhodium and a forecast is planned for release via Thomson Reuters Eikon later in the year. Rhodium production rebounded last year with the principal driver (as was the case for the other PGMs) being the return to a full year of mining operations in South Africa, following the five-month AMCU strike in 2014. South African output increased by 39% to total 624 koz (19.4 t), its highest level since 2011 and just 5% below the all-time
7500
World Platinum Mine Production 2013
2014
2015
Change
South Africa
4,368
3,220
4,522
40%
741
687
721
5%
Russia Zimbabwe
409 398 398 0%
Canada
217
278
242
-13%
United States
120
119
122
3%
Others World Total
4,856
6,158
1500
27%
0
World Palladium Mine Production 2014
2015
Change
2,432
2,008
2,653
32%
Russia
2,527
2,582
2,575
0%
Canada
530
578
519
-10%
United States
404
401
406
1%
314
325
323
0%
261
243
238
-2%
6,468
6,136
6,713
9%
2015
Change
2008
2010
2012
2014
South Africa
599
449
624
39%
Russia
91
87
88
1%
Zimbabwe
35 36 35 -3% 24 22 24 9%
United States
3 3 3 0%
Others
- - - 598
775
29%
2006
2008
2010
2012
2014
800 700 Thousand Ounces
Supply
2014
18
2006
1500
900
2013
Source: GFMS, Thomson Reuters
2014
0
(000 ounces)
752
2012
3000
World Rhodium Mine Production
World Total
2010
4500
Source: GFMS, Thomson Reuters
Canada
2008
6000 Thousand Ounces
2013
South Africa
World Total
2006 7500
(000 ounces)
Others
Zimbabwe
3000
Source: GFMS, Thomson Reuters
Zimbabwe
Other
Canada
4500
156 154 152 -2% 6,011
United States
South Africa
6000 Thousand Ounces
(000 ounces)
Russia
600 500 400 300 200 100 0
GFMS PLATINUM GROUP METALS SURVEY 2016
high for South African supplies. This peak came three years later than that for platinum and has since tailed off less sharply. A key factor behind this relative resilience in rhodium output in recent years has been the gradual shift in ore blend to more UG2 reef, which typically has almost twice the concentration of rhodium than Merensky ore. Several economic factors including higher PGM grade and higher platinum proportions have meant that in preceding decades many Merensky occurrences were developed preferentially to UG2. As available reserves in many shafts’ Merensky areas have been depleted there have been several phases of mine planning that have favoured UG2 optimisation; not least in the mid-late 2000s when the rhodium price drove to its all-time-high. The increase in South African supplies accounted for 99% of the global increase last year, with fractionally higher output from Russia and North America, largely offset by lower output from Zimbabwe.
South Africa South African platinum production rose by 40% last year, with palladium up by 32%. This led to South Africa becoming the world’s largest producer of palladium mine production last year; a position that may well be retained in 2016 but unlikely beyond, based on the GFMS forecast which assumes Russian output will recover. A strong 2015 production increase was always on the cards after the extraordinary industrial action in the first half of 2014 but the total surpassed GFMS’ forecast. Globally, of the ten largest gains at the mine level last year for platinum, nine came from mines that had been impacted by the AMCU strike, with the outsider being Booysendal North, also South African, which after commissioning in 2013 continued to ramp-up production. Of the strike-impacted mines, Impala Rustenburg delivered the strongest improvement last year with more than double 2014’s platinum output and triple its palladium production.
South African mine production
6000
Platinum
Platinum Price
Palladium
Palladium Price
500
400
4000 300 3000 200 2000 100
1000
0
0 2006
2008
2010
2012
2014
Rand/kg (Thousands)
Thousand Ounces
5000
A noteworthy outcome this year has been the remarkable resilience of the industry against mine closure, which has only occurred in a handful of isolated cases. It has been clear for some time that the industry would not make ‘knee-jerk’ decisions on mine closure for myriad reasons including the social implications, the high cost of restructuring itself and a reluctance to altruistically aid competitors. As a consequence a much broader focus has been on companies’ boards and management adopting progressively more stringent conditions to the approval of capital deployment. To this end both Implats and Lonmin guided spending reductions would reduce future production profiles during 2015. Care & maintenance announcements have in the main been nuanced, with the mothballing of certain workings within a shaft complex rather than ceasing operations outright. During the year Impala announced plans to close the mechanised sections of Impala 8# and 12#. Glencore announced the proposed suspension of the remaining decline at Eland in August, which was followed by Atlatsa’s announcement in September that its older, UM2 and Vertical Merensky shafts, would be mothballed at Bokoni with continuing production from its MPH and Brakfontein shafts. South Africa’s government threw the domestic miners a temporary and inadvertent gift in early December when it was announced that respected Finance Minister Nene would be replaced with the relatively unknown Des van Rooyen. The markets’ response to this announcement was a 9.5% rand sell-off over three days, with the government counter response to reverse the decision and announce appointment of former Finance Minister Pravin Gordhan to the post. The government surprised again in mid-April 2016 with comments made by Mineral Resources Minister Zwane concerning an updated draft of South Africa’s Mining Charter, in which it was stipulated that a minimum 26% BEE ownership must be maintained in perpetuity. This is at odds with industry’s interpretation of “once empowered, always empowered” and has onerous ramifications if enacted.
Source: GFMS, Thomson Reuters
19
Supply
Rhodium
Considering the extreme nature of South Africa’s 2014 output we would argue that in many ways 2013 offers a better year for comparison purposes: platinum and palladium output were 4% and 9% higher respectively in 2015. The strongest gains have been from Amplats’ Amandelbult Section (+65 koz or 2.0 t) of platinum, predominantly from the former Tumela shaft and from Mogalakwena (+52 koz or 1.6 t for platinum and more strongly for palladium), thanks largely to the start of the North concentrator debottlenecking project. Northam’s Booysendal North project added 45 koz (1.4 t) compared with the 2013 figures.
GFMS PLATINUM GROUP METALS SURVEY 2016
MERGERS, ACQUISITIONS & RAISINGS IN THE PGM MINING SECTOR
with flexibility for its medium term plans to expand the footprint of Booysendal, whose South lease lies immediately down-dip to the Everest property.
After a quiet year for M&A in the PGM space in 2014, 2015 showed substantial uplift in the number of deals tabled, if not completed.
On 2nd April 2015 Norilsk Nickel completed the first leg (Tati Nickel) of its African assets disposal (comprising both Tati and its
In September 2015 Anglo American Platinum (Amplats) agreed
50% stake in Nkomati) to Botswana’s state-controlled BCL Limited
terms for the sale of its Rustenburg mines, concentrators and
for $337 million. At the time of writing the Nkomati transaction
tailings retreatment facility – operations that have played a central
awaits regulatory approval from the South African government.
role in Amplats’ (and previously JCI Corporation’s) dominant
Glencore plc’s shareholders voted to divest its minority 24% holding
producer position over the decades – to Sibanye Gold. Rustenburg’s
in Lonmin plc on 7th May which then took place as an in specie
most recent round of restructuring has been underway since 2013
distribution to the Glencore shareholder base. In Canada, presaging
and its exit from Amplats’ portfolio has been on the cards for over
the Mitsubishi Corporation’s recent announcement by its new CEO
a year, with a handful of other non-core assets still on the table.
to “shift away from commodities,” it made a tiny step last year
Sibanye followed this move in October 2015 by announcing a bid
through the disposal of its 25% holding in the Marathon project to
to acquire Aquarius Platinum at a near-60% premium to Aquarius’
the project’s manager, Stillwater Mining, for a total consideration of
share price at the time; the bid was unanimously recommended
$5.2 million.
by Aquarius’ board and the transaction completed in March 2016. This action followed speculation in recent years that Aquarius
A number of companies pursued equity capital raisings last
could bid for the Siphumelele mine; as Siphumelele is situated
year in order to address requirements such as the need to fund
down-dip to the Kroondal pool & share joint venture. Control of
development or restucture debt at a time when depressed PGM
both assets would enable mining into one mine’s reserves from the
prices have left internal cash generation lean (or negative) and
other’s infrastructure, extending the productive life of a combined
balance sheet gearing exposed.
entity. Amplats’ 50% stake in Kroondal, which at its annual results was highlighted as non-core, would remain as an enclave within
The most prominent of these included an announcement by Impala
Sibanye’s ground, presupposing that the Sibanye acquisition of
Platinum of a R4 billion rights issue in September to fund continued
Rustenburg goes through (which will require government approvals
development at its 20 and 16 shafts and later on 19th November
and will likely be a lengthy process, potentially extending to the
Lonmin shareholders voted in favour of a more controversial raising
end of 2016 or beyond). It would seem to us a logical further
for $407 million, in order to restructure credit facilities. In order to
consolidation opportunity for Sibanye to look to take full ownership
encourage shareholders to follow their rights, the new placement
of Kroondal, provided terms can be agreed. Sibanye currently
involved a highly dilutive issuance of 46 new shares for each existing
holds the accolade of being South Africa’s largest gold producer.
share, followed by a 100:1 share consolidation. Ivanhoe Mines, which
Through the acquisitions underway, Sibanye Platinum is now likely
is developing the Platreef project made an announcement earlier
to become South Africa’s fourth-largest and the world’s fifth-largest
in the year that Zijin Mining Group would acquire a 9.9% stake in
producer of mined PGMs.
Ivanhoe through the issuance of new shares, for approximately $82 million.
Following Northam’s landmark BEE transaction through its issuance of 22% of new share capital to a special purpose vehicle named
Subsequent to year-end Boliden reinforced its already extensive
Zambezi Platinum in 2014, the cashed-up company announced
Nordic portfolio of assets with the proposed acquisition of the
its acquisition from Aquarius of the suspended Everest Mine, and
Kevitsa Ni-Cu-PGM mine in Finland from First Quantum Minerals,
250ktpm UG2 concentrator plant for R400 million (approximately
for a consideration of $712 million and with a targeted completion
USD 33 million) and the associated new order mining right for a
date of May 2016.
Supply
further R50 million (USD 4 million). The deal provides Northam TOP 6 PGM transactions in 2015-16 (YTD) Vendor
Acquirer
Asset
Transaction
Value
Initial Date
First Quantum Minerals Ltd
Boliden AB
Kevitsa
Sale
$712M
10/03/2016 Outstanding
Lonmin plc
Shareholder base n/a
Rights issue
$410M
19/11/2015
OJSC MMC Norilsk Nickel
BCL Limited
Tati & Nkomati 1
Sale
$337M 14/10/2014 02/04/2015
Anglo American Platinum Ltd
Sibanye Gold
Rustenburg Section
Sale
$341M 2 09/09/2015 Outstanding
Glencore plc
Shareholder base 23.9% of Lonmin plc Distribution in Specie $298M
11/02/2015
07/05/2015
Impala Platinum Holdings Ltd
Shareholder base n/a
06/10/2015
07/10/2015
1
50% Nkomati sale still pending 2 Upfront and deferred payment
Source: Company Reports; GFMS, Thomson Reuters
20
Rights issue
$296M
Completion 11/12/2015
GFMS PLATINUM GROUP METALS SURVEY 2016
Top 10 platinum producing companies Rank 2014 2015 Company
Top 10 palladium producing companies Output (000 ounces) 2014 2015
Rank 2014 2015
Output (000 ounces) 2014 2015
Company
1
1 Anglo American Platinum Ltd. 1
1,324 1,837
1
1 OJSC MMC Norilsk Nickel
3
2
Impala Platinum Holdings Ltd 2
661 1,039
2
2 Anglo American Platinum Ltd. 1
921 1,238
4
3
Lonmin plc. 3
454
755
3
3
Impala Platinum Holdings Ltd 2
441
621
2
4 OJSC MMC Norilsk Nickel
662
656
4
4
Stillwater Mining Co.
400
403
5
5
208
223
6
5
Lonmin plc. 3
232
342
6
6 Aquarius Platinum Ltd.
188
197
5
6
Vale S.A.
398
341
8
7
173
158
7
7
Glencore plc.
199
202
9
8 ARM Platinum
163
158
8
8
North American Palladium Ltd.
174
167
7
9
Vale S.A. 5
182
154
9
9 ARM Platinum
166
158
11
10
Stillwater Mining Co.
118
118
10
10 Aquarius Platinum Ltd.
113
119
Northam Platinum Ltd. 4 Glencore plc.
Refined production from mining operations 3 Calendar year refined sales; 4 Estimated saleable metal in concentrate 1
2,752 2,689
5
Attributable mine production including Zimplats 5 Including custom feeds 2
Source: GFMS, Thomson Reuters
Russia
NORTH AMERICA
Russia’s production of mined platinum, palladium and rhodium stood at 0.72 Moz (22.4 t), 2.58 Moz (80.1 t) and, GFMS estimates, 88 koz (2.7 t) respectively. Palladium output from Russian mines was essentially flat in 2015. This apparently level outcome disguised production variance during the year: production of PGMs from domestic operations was moderately higher in the first six months of 2015 but this was followed by a reduction in throughput in the second half of the year as the company commenced the reconfiguration of its processing capacity. Rhodium production is estimated to have remained steady (at relatively elevated levels) last year as the company continued to process accumulated stocks of PGM-rich pyrrhotite concentrates for much of 2015. Long-standing plans to retire Norilsk’s original Nickel Plant (after more than 70 years of operation) are now underway, primarily to improve Norilsk City’s environmental footprint, in particular with a view to reducing the emissions of sulphur dioxide from pyrometallurgical processes. Norilsk has indicated that production is expected to contract in 2016 as a function of downstream processing constraints and in anticipation of a production shortfall built up its metal inventories, including PGMs.
The majority of Canadian PGMs are extracted as coproducts from nickel-copper mines. Canadian production of platinum and palladium decreased by 13% and 10% last year, with moderately lower output being a theme across several of the Canadian producers. Vale’s reported group sales of platinum and palladium from all sources were, in aggregate, 15% lower year-on-year. Stripping out an allowance for third party feeds, GFMS estimates that Vale’s production also saw own production from its Sudbury operations decrease by double-digits in percentage terms. 2015 saw the first ever reporting of PGM production data from Glencore’s Canadian nickel assets, which showed a 7% drop in platinum and a 5% rise in palladium output. Commentary on the operations was not provided, but the disclosure enabled a restatement of GFMS data with higher figures than were previously accounted for in our 2014 estimate.
Russian mine production
4000
Platinum
Platinum Price
Palladium
Palladium Price
2500
Thousand Ounces
1500 2000 1000 1000
500
0
0 2006
2008
2010
2012
2014
Source: GFMS, Thomson Reuters
21
Supply
2000
3000
Rouble/gramme
Platinum production from Russia increased by 5% last year. This was a function of firmer production from the alluvial sector. Having been impeded by equipment availability issues in 2014, the country’s largest alluvial operation, Kondyor in Khabarovsk Krai, posted an increase of almost one-third in 2015, albeit with production yet to return to budgeted levels. We estimate that output from the smaller alluvial operations in the Kamchatka and Ural regions decreased last year.
Production from Canada’s sole primary PGM mine, Lac des Iles decreased year-on-year. Payable palladium fell by 5% to 0.16 Moz (5.2 t). This weaker production belies a strong third quarter which was more than offset
GFMS PLATINUM GROUP METALS SURVEY 2016
by operational and business-related challenges in the second and fourth quarters. In Q2 a process water discharge necessitated concerted tailings management and a temporary cessation of milling, for 50 days. During Q4, in response to persistently lower palladium prices North American Palladium announced a headcount reduction of approximately 10% at the mine, halted the processing of lower grade mill feeds and shifted its milling activities from continuous to a two-weeks-on/ two-weeks-off schedule. Mine production from the United States was marginally higher last year with platinum and palladium posting respective increases of 3% and 1%. At the country’s largest PGM producer, Stillwater Mining’s namesake operation, mined production of both platinum and palladium fell by 6% in 2015. In the face of lower metals prices the company made the decision to suspend production activities at certain high-cost workings and over the course of 2015 reduced its Montana workforce by 11%. Compounding the effects of these production decisions the operation underwent a maintenance shutdown of the concentrator, crusher and production hoist, which at the latter required additional downtime. East Boulder, on the other hand, recorded output gains of more than 10% for both metals thanks to additional mined volumes from the Graham Creek project. Stillwater announced that in late December and January the company reached new four-year labour agreements at the two mines. Meanwhile, Lundin Mining’s Eagle NiCu mine in Upper Michigan saw out its first full year of production, delivering above-budget base metal output and, we believe, concomitantly higher PGMs.
Zimbabwe PGM production in Zimbabwe was essentially flat in 2015, with platinum output steady and palladium and North American mine production
rhodium each just over 1,000 ounces lower. Production at Ngezi suffered as a result of the remediation activities at Bimha mine following the major (fatality-free) fall-ofground event on 8th July 2014, which rendered 50% of the working areas of that portal inaccessible. Associated remediation will take several years but the 2015 production drop was compensated by a redeployment of mobile machinery to other portals, coupled with a re-start of production from the Ngezi South pit. An additional challenge was presented in May 2015 when a furnace leak occurred at the Selous Metallurgical Complex; associated smelter downtime skewed production to the second half of the year, with some concentrate stock built up for smelting in 2016. Government pressure on industry to progress solutions to deliver additional domestic beneficiation of PGMs persisted over the year, although relaxation to a 15% export levy was made clear to producers in July 2015. This tariff was, in principle, in place during the first half of the year. This period of uncertainty coincided with Unki accumulating concentrate stocks, but despite this both Unki and Mimosa posted modestly higher production in 2015) albeit loaded to the back end of the year.
Other countries Among the group of ‘other countries’, platinum and palladium production decreased marginally. Output from Kevitsa in Finland had reached steady state operations in 2014 and recorded a slight dip in recovered precious metals in the middle of 2015. We estimate that PGM output from another primary nickel producer, Tati in Botswana, fell last year and in the first quarter of 2016 comments attributed to the Botswana Miners Workers Union highlighted that its contract mining workforce was at imminent risk of redundancy.
Zimbabwean mine production
Pt Pd United States
Platinum Price
Canada
Palladium Price
2000
500
1200
1000 600 400
500
200 0
0 2006
2008
Source: GFMS, Thomson Reuters
22
2010
2012
2014
Platinum Price
Palladium
Palladium Price
2000
1500
300 1000 200 500
100
0
0 2006
2008
Source: GFMS, Thomson Reuters
2010
2012
2014
US$/oz
800
Thousand Ounces
1500
1000
Platinum Rhodium
400
US$/oz
Thousand Ounces
Supply
1400
GFMS PLATINUM GROUP METALS SURVEY 2016
Total Cash costs per equivalent ounce (US$)
Production costs
——Global average Total Cash Costs expressed in dollars
North America
decreased by 23% to $932/platinum equivalent ounce (PtEqoz). ——The downward trend in part reflects the unusual conditions during strike-affected 2014. ——Producers also gained from macroeconomic tailwinds in the form of currency depreciation and lower oil prices. ——Global All-in Costs fell by 9% to $1,534/PtEqoz.
South Africa
In some respects, 2015 could be described as a return to normality for producers, after the South-African dominated industry was severely impacted by the protracted strike action of 2014. The global cost curves below illustrate fairly dramatic divergence between 2014 and 2015; last year, the Total Cash Cost decreased by 23% to $932/PtEqoz. The reductions in production costs that would be expected on the resumption of normal throughput volumes were enhanced by other factors, chiefly a macroeconomic backdrop of weakening producer currencies and falling oil prices, as well as ongoing cost-containment measures undertaken by producers. However, despite the substantial falls in production costs, producer margins (on a Total Cash Cost plus sustaining capex basis) continued to contract, thanks to decreasing metal prices. All of the main PGM-producing regions experienced falls in average Total Cash Costs last year. In South Africa, the source of 82% of costed production during 2015 on
2014
2015
Change
938
747
-20%
1,286
944
-27%
Zimbabwe
978 955 -2%
Russia
475 390 -18%
World*
1,215
932
*Excluding Russia
-23%
Source: GFMS, Thomson Reuters
a platinum-equivalent basis, average Total Cash Costs fell by 27%. While the return to normal production levels after the five-month strike in 2014 was an important part of this, producers also benefited greatly from rand depreciation over the period. By contrast, in Zimbabwe, where the U.S. dollar was adopted for use as the main currency in 2009, producers are not in a position to benefit from currency weakness against the U.S. dollar. Consequently, Total Cash Costs fell by only 2% last year. The average All-in Cost, which includes all cash and non-cash costs, sustaining capital expenditures, indirect costs and overheads, fell to $1,534/PtEqoz in 2015, an 8% decrease. This figure reflects the impact of a number of non-cash asset impairments, including those charged on Marikana and the Rustenburg mines. This analysis excludes Norilsk Nickel, which produces large quantities of platinum and palladium as coproducts of its nickel-copper mining activities in Russia. This exclusion is undertaken in order to avoid distortion to the cost statistics. Inclusion of Norilsk’s Russian assets would have the effect of dragging the 2015 Total Cash Cost down to $696/PtEqoz.
World platinum equivalent Total Cash Cost and All-in Cost Curves 3000
3000
2014 All-in Cost 2015 All-in Cost 2014 Total Cash Cost
2500
2500
2015 Total Cash Cost 2014 Average Platinum Price ($1,385.70/oz) 2015 Average Platinum Price ($1,052.91/oz)
2000
1500
1000
1000
500
500
0 0 10 Source: GFMS, Thomson Reuters
0 20
30
40 50 60 Cumulative Production %
70
80
90
100
23
Supply
1500
US$/PtEqoz
US$/PtEqoz
2000
GFMS PLATINUM GROUP METALS SURVEY 2016
YEAR-ON-YEAR COST CHANGES Based on detailed mine-by-mine analysis in Thomson Reuters’ PGM Mine Economics Service, estimates of the main cost drivers of mine production can be isolated and quantified, in the form of a year-on-year variance analysis. These are presented here on a $/PtEqoz basis, and reflects platinum equivalent production of recoverable metal in concentrate for our global population of primary PGM mines. The first step in this process is to quantify and strip out the effects of exchange rate changes, by calculating the extent to which mine site costs would have changed from one year to the next in dollar terms, were exchange rates the only driving factor. The chart overleaf illustrates the extent to which PGM producer currencies have weakened against the U.S. dollar over the past two years (it should be noted that Norilsk’s Russian operations are excluded from this variance analysis). During 2015, exchange rates were the single most significant driver of producer costs, providing $144/PtEqoz of downward pressure on the average Total Cash Cost. Given that supply is predominantly from South African operations, this component of the variance analysis primarily reflects the impact of rand depreciation. Second in magnitude to exchange rates in terms of effect on producer costs during 2015 was the miscellaneous category, which acts as a “catch-all” for a number of factors that cannot be satisfactorily disaggregated through the variance analysis. This includes metal production volumes and prices, as well as specific consumables and maintenance costs and the costs of maintaining plant and equipment during strikes. During 2015, $116/PtEqoz of the overall reduction in Total Cash Costs was attributable to the miscellaneous category.
This incorporates the marginal effects of co-product metal price trends, which in 2015 were downwards across the suite. Of greater importance were significantly higher production volumes as mines in South Africa returned to a full year of normal operating conditions following the 2014 strike. Furthermore, the ongoing efficiency programmes undertaken by producers in order to minimise spending on consumables and optimise maintenance regimes also pushed costs downwards last year. For example, during the first six months of its 2016 fiscal year (ending June), Implats had realised R112 million of operating cost savings through contract renegotiations and improved consumption, plus another R74 million saved through efficiency improvements. Further downward pressure of $20/PtEqoz was provided by lower smelting and refining costs last year. Although there is a large fixed cost component to smelting and refining, the higher volumes processed during 2015 led to a cost reduction on a dollar per ounce basis. In some cases, such as at Marikana, producers kept smelters running during the 2014 strike in order to enable swift ramp-up to normal operations. This contributed to the relatively high smelting and refining unit costs during 2014, and a consequent substantial drop when normal operating conditions returned during 2015. Amplats placed an emphasis on process efficiencies, stability and maintenance at its smelter operations during 2015, with the result that its Polokwane smelter treated record concentrate volumes during the year. Higher smelting costs in absolute terms at Amplats’ operations were largely due to above-inflation increases in power costs (not disaggregated within the smelting and refining category). However, on a per-ounce basis, higher treated volumes outweighed the effects of cost inflation.
2015 Platinum Equivalent All-in cost curve* 2000
sed
ani
ch Me
ce
fa Sur
al
ion
t ven Con
Sustaining Capex, Indirect Costs & Corporate Overheads
Supply
1500
Depreciation & Amortisation
U.S.$/PtEqoz
Total Cash Costs 1000
500
0 0 10 20 30 40 50 60 Source: GFMS, Thomson Reuters Cumulative Production (%) *Excludes extraordinary non-cash items, for scaling purposes.
24
70
80
90
100
GFMS PLATINUM GROUP METALS SURVEY 2016
US$ against PGM producers’ currencies
Average margins (primary PGM mines)
180
Canadian dollar South African Rand
Index, 2nd January 2014 = 100
2014
2015
South Africa (annual averages in 000 rand/kg)
160
TCC + Sustaining Capex
494
420
-15%
Revenue Realised
470
428
-9%
Margin
140
Change
-23 8 n/a
US$:Rand
10.83 12.77 18%
North America (annual averages in US$/PtEqoz)
120
TCC + Sustaining Capex
100
Revenue Realised Margin
80 Jan-14
Jul-14
Jan-15
Jul-15
1,137
893
-21%
1,386
1,059
-24%
249 166 -33%
Zimbabwe (annual averages in US$/PtEqoz)
Jan-16
Source: Thomson Reuters
Lower fuel costs contributed a $14/PtEqoz reduction to Total Cash Costs last year. This cost saving is perhaps unsurprising given the dramatic fall in global oil prices during 2015. Focusing on production from open pit mines, for which the fuel component is far more significant, output increased in absolute terms during 2015, on higher volume from Mogalakwena. However, as a proportion of total costed production, the contribution from surface operations fell from 16% to 13% year-onyear, as the strike-affected underground operations ramped back up to full capacity. Royalties provided $8/PtEqoz of downward pressure on costs during 2015. Generally, royalties were lower on lower profitability (although some South African producers had already seen their royalties drop to the minimum level of 0.5% of gross revenue prior to 2015). Having featured as one of the primary drivers behind the variance in producer costs over the last few years, labour costs contributed a relatively modest $14/PtEqoz of upward pressure during 2015. The three-year wage agreement entered into during 2014 by Lonmin, Implats and Anglo American Platinum committed the companies
TCC + Sustaining Capex
1,106
1,076
-3%
Revenue Realised
1,388
1,060
-24%
Margin
282 -16 n/a
Source: GFMS, Thomson Reuters
to annual increases of 7.5-8%, or greater for those earning below R12,500/month. These increases were somewhat mitigated by headcount reductions at various operations. For example, Amplats cut 3,775 employees during the year, while Atlatsa reduced both employee and contractor headcount as part of the restructuring of its Bokoni operation. Power costs also remained a headwind for producers last year, adding $5/PtEqoz to production costs. This was overwhelmingly driven by electricity tariff increases imposed on South African operators by Eskom under the NERSA Multi Year Price Determination 3, which commenced in 2013 and runs for 5 years. In October 2014, NERSA approved Eskom’s implementation plan relating to recoupment of revenue under-recovered over the 2010-2013 period, with the result that operators in South Africa saw a 12.7% tariff increase, effective from April 2015.
Platinum equivalent total cash cost variance analysis
1250
750
2014 Source: GFMS, Thomson Reuters
-14
-8
Fuel
Royalties
-20 Smelting & Refining
850
-116 Miscellaneous
950
Power
Labour 1,215
-144
Exchange rates
U.S.$/PtEqoz
1050
+5
Supply
+14 1150
932
2015
25
GFMS Platinum group metals Survey 2016
Autocatalyst Recycling ——Last year autocatalyst scrap recycling recorded its second biggest drop in the case of platinum and its single biggest decline for palladium since the start of our series in 1999. In 2015 platinum scrap fell by an estimated 14% to 0.93 Moz (28.9 t) and palladium scrap dropped 11% to 1.6 Moz (49.9 t). Rhodium fell 12% to 0.28 Moz (8.8 t). The decline was particularly severe in North America and Europe where platinum autocatalyst scrap recycling rates fell an estimated 17% and 25% to 0.35 Moz (10.9 t) and 0.32 Moz (10.1 t) respectively. Palladium volumes from autocatalyst recycling followed a similar trend falling by 16% in each to 0.95 Moz (29.4 t) and 0.33 Moz (10.3 t) respectively. Rhodium recycling in turn fell by 22% and 19% to 0.11 Moz (3.5 t) and 0.07 Moz (2.1 t) respectively.
raw materials in the car. With base and precious metals and steel prices all in the doldrums, the material flow through the recycling supply chain choked. Suddenly, vehicle owners had less incentive to scrap cars as the previous rewards had shifted to a cost. Scrapping a car came to require a capital outlay as opposed to a receipt. Further down the value chain, fewer cars were stripped for their valuables such as copper (wires and electronics), aluminium (frames and rims), lead (batteries) and other important items such as platinum, palladium and rhodium from autocatalysts. Particularly, scrapyards were not buying vehicles because the value of the material was below the cost of shredding. Only the scrapyards whose business model focused on dismantling and parts re-sale were still actively buying scrapped cars.
In a study by Polk Company and the National Automobile Dealer Cars Association, the average scrappage rate of passenger cars in the United States was 92% of new sales over 2001-2013. For the most part, vehicle sales in developed regions are a good proxy for auto scrap rates, which in turn, with a lag, are a good indication of PGM autocatalyst recycling volumes. Light duty vehicle production in both North America and Europe recorded healthy gains last year, rising by 3.4% and 3.3% to 17.5 and 20.5 million units respectively, implying equally strong recycling volumes where the theory holds.
Another factor that contributed to the drop in recycling volumes was highlighted by a public study which found that in times of higher fuel prices, gas guzzling vehicles tend to get scrapped more whereas fuel efficient vehicles tend to rise in value as demand for them rises and they get scrapped less. In this case the contribution to the vehicle scrap rate can be determined by the composition of the vehicle fleet. Following the drop in the oil price, gasoline prices followed suit. This was reflected in consumer petrol prices at the pump which reduced the urgency to recycle larger less fuel efficient vehicles. We believe this factor also played a considerable role in reducing the vehicle scrap rate in North America, which utilises larger passenger vehicles than other regions.
In any given year that might be the case but last year a different scenario unfolded, which was mainly a function of the drop in the steel price. Indeed, Shanghai carbon steel rebar futures, a good proxy for steel prices, have been under pressure for several years with the average price last year 57% below 2011. In previous years, vehicle owners received payment based on the value of the
With sales volumes rising in both North America and Europe and recycling volumes down, we estimate that the recycling rate as a function of new car sales has dropped considerably last year to a range of perhaps 65-70%. We don’t argue however that this relationship is broken, but, rather, quite the opposite. In fact, given the sharp drop in recycling volumes last year, we expect
TOTAL OPEN LOOP SCrap Share of Total Supply
Global autocatalyst recycling
Ch5 - LV prod China
Rhodium
Palladium
Platinum 1800
Supply
100
Other China
1500 Thousand Ounces
80
%
60
40
20
Japan Europe
1200
North America
900 600
Rhodium
300
Palladium
Platinum 0 2000 2002 2004 2006 2008 2010 Source: GFMS, Thomson Reuters; LMC
26
0 2012
2014
2014
2015
2014
Source: GFMS, Thomson Reuters
2015
2014
2015
GFMS PLATINUM GROUP METALS SURVEY 2016
promote more value-added business domestically. International players have increasingly also stated their interest to get a foothold in the rapidly growing market, usually in joint-ventures. The government’s bold new five year plan has clearly shifted towards tackling pollution and its repeatedly expressed war on toxic emissions supports the need for more advanced recycling capabilities in a country with a vast pool of old vehicles. Previous incentives to get Euro 1 equivalent vehicles off the road were a good move, although less for PGM recycling due to the absence of significant PGM loadings. That, however, still leaves room for other cars adhering to previous standards to be scrapped.
some of those pent-up stocks to be released to the market this year above and beyond the usual material flow, which is likely to push the pendulum to the other end of the spectrum. This hypothesis is further supported by the sharp change in the metals sentiment at the start of the year, where base and precious metals as well as steel prices recorded a significant increase in the first quarter. This might motivate some recyclers to release their accumulated material in anticipation of a correction in raw material prices following the rapid move up. Elsewhere, in Japan we estimate that platinum autocatalyst recycling improved moderately by 3% reaching 0.07 Moz (2.0 t), whereas recycling rates for palladium autocatalysts fell 8% to 0.09 Moz (2.7 t). Rhodium remained flat at 0.04 Moz (1.4 t). Although platinum autocatalyst scrappage volumes were slightly up, this was not a true reflection of the underlying market and merely a function of material sourced from abroad. In Japan, 91% of total vehicle production was gasoline driven last year, which speaks to the country’s reliance on palladium- and rhodium-based aftertreatment formulations. Driven by a 6.2% drop in total (both light and heavy) vehicle production, palladium volumes retrieved from autocatalyst recycling fell in sync.
Due to gasoline’s dominance in the Chinese vehicle market, palladium-loaded catalysts tend to come back in larger quantities compared to their platinum counterparts. However, similar to some other regions, old vehicles discarded in the major cities do not always immediately find their way into the recycling supply chain but are migrated inland, where the emissions legislation and compliance enforcement are less strict. We estimate recycling volumes for palladium autocatalyst scrap are 2-3 times higher than platinum and forecast this to rise. Other Regions saw healthy gains for all three metals, rising by 11% and 20% to both 0.15 Moz (4.6 t) in the case of platinum and palladium and 15% to 0.06 Moz (1.8 t) in the case of rhodium. Many countries in this group don’t have the technological know-how to process autocatalyst scrap themselves but collect and pre-process in order to ship the material for refining to the international players in the region. Despite emissions legislation lagging the most modern standards in the developed world, standards are catching up. This means more PGM’s are needed on new vehicles and increasingly vehicles with higher PGM loadings are returning. On average, loadings are much lower, but large volumes add up.
In China, where recovery rates are still relatively low, growth in all PGMs was robust last year, driven by the growing pool of available vehicles and a rising incentive to scrap older cars. Platinum autocatalyst recycling rose 20% to 0.04 Moz (1.1 t), whereas palladium and rhodium grew more rapidly, by 24% and 30%, respectively, reaching 0.1 Moz (3.0 t) and 3 Koz (0.1 t) last year. We understand that the recycling industry in China is still relatively underdeveloped with previously scrapped autocatalysts frequently finding their way back to European processing facilities. That however is changing with central and local governments alike vouching to AUTOCATALYST DEMAND AND AGE PROFILE 12000
12 Rhodium 10
8000
Platinum
8
Age Profile of ELVs scrapped
6000
Available Pool 2018
Available Pool 2015
6
4000
4
2000
2
0
Age Profile (%)
Thousand ounces
Palladium
0 1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
Source: GFMS, Thomson Reuters (Johnson Matthey demand data for pre-1999)
27
SUPPLY
10000
GFMS Platinum group metals Survey 2016
Jewellery scrap supply
Platinum & palladium jewellery scrap
1,000
——Global platinum jewellery scrap rose 4% last year to
Global platinum jewellery scrap increased by 4% last year to reach 0.54 Moz (16.7 t), while the supply of palladium jewellery scrap rose by 7% to 0.26 Moz (8.3 t). For both metals, the sole driver in the increase in scrap supply was China. If we look to platinum, Chinese scrap in 2015 jumped up by 21% year-on-year to total 0.30 Moz (9.5 t), its highest level since 2008, contributing over half of total scrap supply last year. Japan, the second largest source of supply in this category after China, fell 12% in 2015, while a contraction in supply was also recorded in all other regions, namely North America, Europe and our “Other Regions” category.
Supply
Turning our attention to the key regions in more detail, platinum jewellery scrap from China has continued to accelerate over the last two years, overtaking Japan as the largest jewellery scrap contributor in 2014, after sharing top position in terms of global market share with Japan in 2013, (at 48% each). The surge in domestic demand arose due to several factors; firstly, the need to generate cash, as China’s poorer economy (which faced its slowest growth rate in 25 years last year), encouraged people to sell their hoardings, releasing more supplies into the market. Secondly, with newer more sophisticated designs of platinum jewellery available, consumers were coaxed into trading old pieces of jewellery for new. Thirdly, a rise in collection points and refineries capable of treating platinum scrap assisted in a more seamless collection system, encouraging scrapping. Meanwhile, looking to Japan, the contraction in demand last year, which resulted in scrap supply at its lowest level since 2005 of 0.22 Moz (6.7 t), was driven by platinum’s average annual price in yen having plummeted by 13% on a year-on-year basis, significantly discouraging sales. Scrap supply from North America contracted for the second consecutive year in 2015, falling by 30% to reach its lowest level since 2004 of 0.06 Moz (0.17 t). This fall in supply was attributed to an improving U.S. economy, in which fewer people felt the need to liquidate as unemployment levels fell and disposable incomes rose. While, the 26% tumble in the platinum price, further discouraged selling. Similarly looking to Europe, scrap
28
Platinum
Palladium Price
Palladium
Thousand Ounces
800
2,000
1,500
600 1,000 400
US$/oz
reach its highest level since 2011 of 0.54 Moz (16.7 t), driven solely by a 21% surge in Chinese scrap supply. ——Palladium jewellery scrap rose for the third consecutive year in 2015, by 7% to 0.26 Moz (8.3 t), the highest recorded scrap level in our records.
Platinum Price
500
200
0
0 2006
2008
2010
2012
2014
Source: GFMS, Thomson Reuters
flows remain broadly unchanged over the year, falling by only 5% in a muted reaction to the 9% decline in euro denominated platinum prices. The 7% increase in palladium scrap flows over 2015 saw the metal attain a new historical high of 0.27 Moz (8.3 t), despite falling palladium prices. For similar reasons to platinum, the growth in palladium scrap sales was driven by China alone, with Chinese supply increasing by 12% year-on-year to 0.22 Moz (6.8 t), the highest level on record. Indeed, palladium jewellery scrap supply is dominated by scrap sales in China, which now account for 83% of total supply. Meanwhile, it was North America that recorded the greatest fall in supply last year, declining by 19% to reach levels last witnessed in 2012, while Europe and Japan similarly recorded doubledigit declines.
Above-ground bullion stocks ——Platinum shifted to a broadly balanced physical market in 2015 leaving above-ground bullion stocks of platinum at 7.2 Moz (224 t) at end-year. ——The drawdown of above-ground bullion stocks of palladium continued albeit at a slightly less dramatic pace last year, falling by 9% to 8.8 Moz (273 t).
Our supply/demand balances for platinum and palladium are designed to separate any distorting effect of flows from pre-existing above-ground stocks. Where we are able to identify such flows, these are shown separately as “below the line” items. Consequently, the arithmetical difference between our estimates of new supply (from mining and recycling) and fabrication demand, i.e. the physical surplus or deficit, represents our view of the underlying fundamentals of these metals. Where a physical surplus is reported, this indicates an excess of new supply over fabrication demand, implying
gfms Platinum Group Metals survey 2016
a increase in above-ground stocks. Conversely, a physical deficit indicates a shortfall of new supply relative to fabrication demand. This implies an equivalent decline in above-ground stocks as this metal is called upon to redress that shortfall and satisfy fabrication needs. We also attempt to quantify the broad scale of aboveground platinum and palladium bullion stocks. This includes stocks in the terminal markets, allocations to physically-backed ETFs and declared stock holdings on futures exchanges. In addition, we include an estimate for Russian government stocks of palladium and stocks of refined metal that may be held by industrial consumers and producers over and above normal levels.
Last year also saw a small increase in industry stocks due to Norilsk Nickel’s reduction in platinum sales as it attempted to smooth sales in anticipation of lower output. Consequently, the company has stated that there has been a one-off allocation of saleable metal into its metal reserves. Our view is that this platinum will be released back into the market in 2016.
Palladium
Last year saw the platinum market shift to broad balance at the physical level after a hefty deficit in 2014. Crucial to this, unsurprisingly, was the sharp rebound in South African production aided by the absence of protracted strike action in that country, unlike in 2014. Our estimate of above-ground stocks at end-2015 is in the region of 7.2 Moz or 224 tonnes, of which more than 2.5 Moz (77 t) are ETF holdings, and is equivalent to eleven months’ fabrication demand.
For the ninth year in a row, the palladium market recorded a physical deficit in 2015, reaching 0.9 Moz (27 t). This was roughly a third smaller than a year earlier and the smallest deficit since 2011. This was due to markedly higher South African mine output, and pitiful Chinese jewellery demand and poor electronics offtake. That said, there has been a continued fall in above-ground palladium stocks, which are estimated to have dropped to 9.2 Moz (284 t) by end-2015, equal to roughly 11 months’ fabrication demand. It is interesting to note that the massive reduction in palladium ETF holdings means that the amount of above-ground stocks held outside ETFs dropped by a much more modest 140,000 ounces (4 t). In a similar vein to platinum, there was also an increase in industry stocks at Norilsk Nickel and we expect this metal to reach the market in 2016.
The outflow from ETFs was the largest above-ground stock movement of platinum last year, and the largest ever annual drop for ETF holdings. As a result, ETF holdings fell as a percentage of above-ground stocks, from 38% to 35%, for the first time since their inception in 2007. Against this backdrop it is clear that there is a lack of tightness in the platinum market as the volume of above-ground stocks not held in ETFs rose in 2015 and as highlighted by low lease rates.
Overall, above-ground palladium stocks are still substantial and hence it is unsurprising that the market is not tight, as indicated by low lease rates. Stocks though are trending remorselessly downward as a result of a string of physical deficits this century, although this was somewhat obscured by releases from stocks long held off-market, from Russian government stocks. This ensured inventories in the terminal market were rising until 2011, since when they have dropped appreciably.
Platinum
Estimated movements in stocks PLATINUM (000 ounces) Physical Surplus/(Deficit)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 334
102
529
615
492
562
(157)
477
(708)
54
Industry Stocks
0 (200) (300) 665
Exchange Traded Funds
0 (194) (102) (384) (574) (145) (239) (892) (218) 260
0 (100) (300) (1,000) 1,300 (50)
0
(394)
(402)
281
(574)
(245)
(539)
(1,892)
1,082
210
Net Balance
334
(293)
126
896
(82)
317
(696)
(1,415)
375
265
PALLADIUM (000 ounces) Physical Surplus/(Deficit) Russia
190
(296)
(533)
(17)
(559)
(211)
(1,113) (1,025)
(1,272)
1,550 900 1,280 1,100 800 800 400 200
(868)
0
0
Stillwater
63 0 0 0 0 0 0 0 0 0
Industry Stocks
0 0 0 0 0 (50) (100) (500) 600 (150)
Exchange Traded Funds
0
(280)
(381)
(507)
(1,089)
532
(448)
(0)
(899)
727
Sub total - stock movements
1,613
620
899
593
(289)
1,282
(148)
(300)
(299)
577
Net Balance
1,803
324
366
577
(848)
1,072
(1,261)
(1,326)
(1,571)
(290)
Source: GFMS, Thomson Reuters
29
Supply
Sub total - stock movements
GFMS PLATINUM GROUP METALS SURVEY 2016
MAJOR TRADE FLOWS IN PLATINUM AND PALLADIUM BULLION AND POWDER FROM THE UNITED KINGDOM IN 2015
0.09 0.10 0.06 Ireland 0.03
0.08 0.59
0.31
0.18 0.11
*
Germany
Italy
United States
South Korea
Macedonia
China
Japan
0.49 Hong Kong
0.18 0.05
0.09 0.11
India
0.04
0.04
0.11 0.33
Platinum (Moz) 0.01 0.01
Palladium (Moz)
Flow Direction
South Africa Argentina
0.04
0.03
Flows are calculated using the trade volumes and values Source: GFMS, Thomson Reuters; HMRC
* UK also exported 0.16 Moz Pd to Switzerland
Last year the UK exported 1.41 Moz (44 t) of platinum and
explained by UK consumption and drawdown in stock held
1.86 Moz (58 t) of palladium in bullion and sponge forms,
in the UK. Swiss total exports of platinum at 0.30 Moz (9 t)
down 2% and up 4% respectively on 2014. Flows to the
and palladium at 0.24 Moz (8 t) were down 62% and 78%
United States were down by roughly half for both metals
respectively, while imports of platinum fell 37% to 0.43 Moz
compared to 2014 while the difference was made up by
(14 t) and palladium by 22% to 0.52 Moz (16 t). The dive
larger shipments to Germany and an increasing amount of
in trade through Switzerland comes as some of the main
platinum sent to Macedonia. The UK imported 0.87 Moz (27 t)
consuming countries, like Germany, the U.S. and Hong Kong
of platinum and 1.00 Moz (31 t) of palladium, up 5% and
take more metal direct from key producing countries, South
45% respectively versus 2014. The large trade deficits can be
Africa and Russia.
MAJOR TRADE FLOWS IN PLATINUM AND PALLADIUM BULLION AND POWDER FROM SWITZERLAND IN 2015
0.04 0.05
UK
0.07
Germany 0.04
United States
SUPPLY
0.06 0.04
Italy
0.05 Hong Kong 0.14 0.04
Platinum (Moz) 0.01 0.01
Palladium (Moz)
Flow Direction
Flows are calculated using the trade volumes and values
Source: GFMS, Thomson Reuters; Swiss Impex
30
Japan
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gfms platinum GROUP METALS survey 2016
5. demand fabrication by region, 2006-2015 PLATINUM (000 ounces)
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
North America
1,414
1,425
1,119
845
915
1,032
1,042
1,088
1,134
1,103
Japan 1,550 1,181 1,033 723 927 820 842 638 629 663 China
1,357 1,472 1,586 2,168 1,975 2,015 2,277 2,345 2,196 2,135
Other Regions
1,080
1,228
1,080
922
1,271
1,303
1,148
1,150
1,251
1,268
Total
7,909
7,929
7,147
6,400
7,019
7,130
7,106
6,929
7,036
7,096
2,238
2,311
2,040
1,591
1,978
2,027
2,311
2,312
2,300
2,339
PALLADIUM (000 ounces) North America Europe
1,771 1,880 1,815 1,636 2,019 2,232 2,186 2,133 2,210 2,350
Japan 1,633 1,668 1,689 1,385 1,562 1,477 1,640 1,567 1,564 1,441 China 1,428 1,495 1,533 1,646 1,706 1,729 1,830 1,989 2,064 1,980 Other Regions Total
944
1,088
1,135
1,104
1,313
1,307
1,301
1,272
1,287
1,298
8,013
8,443
8,211
7,362
8,577
8,773
9,267
9,273
9,424
9,407
342
339
250
167
179
198
214
217
205
201
RHODIUM (000 ounces) North America
Europe 224 326 314 268 267 297 252 239 230 227 Japan 225 241 236 155 192 153 145 140 103 102 China
19 22 61 78 103 101 117 130 154 151
Other Regions
182
243
229
193
239
227
177
187
144
146
Total
992
1,171
1,091
861
979
976
905
914
835
827
• Global platinum demand jumped 6% in 2015 to a six year high of 7.57 Moz (235.5 t), as gains in autocatalyst demand and retail investment offset a drop in jewellery and industrial demand.
• Demand for platinum in autocatalyst applications increased 2% last year, with gains in Europe offsetting weaker North American and Japanese demand.
• Jewellery fabrication slipped 4% in 2015 to an estimated 2.46 Moz (76.4 t), led lower by a sizeable fall in China.
• Total palladium demand remained largely unchanged in 2015 to reach 9.45 Moz (294.0 t), as growth in the autocatalyst and chemical sectors offset falls elsewhere.
• Palladium autocatalyst demand rose 4% last year to a record high, pushed higher by uplift in most key markets.
• Platinum usage in glass and the other industrial segment increased last year, while petroleum, chemical and electronics all recorded an annual decline.
10000
year low as weaker economic conditions limited.
china
europe
Japan
north america
10000
china
europe
Japan
north america
other
other
8000 thousand ounces
8000
6000
4000
2000
6000
4000
2000
0
0 2006
2008
Source: gfmS, thomson reuters
32
• Electronics demand posted an 11% fall last year to a ten
palladium demand by region
platinum demand by region
thousand ounces
DEmand
Europe 2,508 2,622 2,329 1,741 1,931 1,960 1,797 1,708 1,827 1,927
2010
2012
2014
2006
2008
Source: gfmS, thomson reuters
2010
2012
2014
GFms platinum GROUP METALS survey 2016
PGM autocatalyst demand
7000
100
palladium rhodium
5000 4000 3000 2000 1000
china
europe
Japan
north america
other 80
60
40
demand
vehicle production, incl. off road (millions)
platinum
6000
thousand ounces
global vehicle production
20
0
0 2006
2008
2010
2012
2006
2014
Source: gfmS, thomson reuters
2008
2010
2012
2014
Source: gfmS, thomson reuters; lmc automotive
autocatalyst demand
demand by region
platinum overview
When dissecting demand growth on a regional basis, the largest consuming region, representing 43% of total demand for platinum in autocatalysts last year, was Europe, which posted a solid 6% rise in demand to total 1.3 Moz (41.9 t). Within Europe, uptake for platinum was robust across the board ranging from the LDG segment to off-road applications. The one segment that dwarfed them all, however, was the light duty diesel (LDD) sector, which accounted for 84% of platinum demand in European autocatalyst applications, and increased by 6% to 1.1 Moz last year. The main drivers of the increase in Europe were robust vehicle production and rising average loadings. In spite of the shaky economic sentiment, light duty gasoline vehicles, which make up slightly more than half of the total light duty vehicle market, rose by 2%. However, their autocatalysts are palladium-intensive, which will be discussed in the
Platinum is mainly used in diesel vehicle aftertreatment solutions. Prior to 2010, platinum was the only metal used in light duty diesel vehicles to catalyse the oxidation of unburned hydrocarbons. Reductions to sulphur content in diesel fuel enabled the introduction of palladium into diesel aftertreatment systems, replacing a portion of platinum loadings with palladium. The platinum-palladium ratio increased from below 1.0 in 2001 to as high as 5.5 in early 2009, which supporting incentives among automakers to focus on PGM costs. Since then, the premium has been in steady decline, having averaged 1.5 (platinum prices were $364/oz higher than palladium prices, on average) last year. Despite this declining trend, the pressure to reduce costs has continued to drive autocatalyst manufacturers to substitute platinum with palladium. Last year, platinum consumption in autocatalyst applications rose by 2% to 3.0 Moz (93.7 t). Following the peak of 4.0 Moz (125.9 t) in 2007, platinum demand came under severe pressure during the Global Financial Crisis when global vehicle sales fell considerably. Sentiment remains positive towards platinum’s demand prospects in this sector, but there are considerable regional differences in terms of performance. Looking at the various vehicle groups on a global basis, platinum recorded an increase in the off-road sector (+24%) last year, albeit from an extremely low base, and in the light duty diesel segment (+5%), which represents 64% of total platinum demand in autocatalyst applications. The light duty gasoline (LDG) and on-road heavy duty diesel (HDD) segment both recorded declines.
autocatalyst demand PLATINUM (000 ounces)
2014
2015
North America
499
461
Europe Japan
1,266 1,346
Change -7.5% 6.3%
278 271 -2.6%
China
241
240
-0.4%
Other regions
673
693
3.0%
2,957
3,011
1.8%
Total PALLADIUM (000 ounces)
2014
2015
Change
North America
1,663
1,746
5.0%
Europe
1,617
1,788
10.6%
Japan
894
827
-7.4%
China
1,536
1,620
5.5%
892
906
1.6%
6,602
6,888
4.3%
Other regions Total Source: GFMS, Thomson Reuters
33
gfms platinum GROUP METALS survey 2016
platinum demand in autocatalysts, 2015
palladium demand in autocatalysts, 2015 Other 13%
North America 15%
Other 23%
North America 25%
China 24%
DEmand
China 8%
Europe 45%
Japan 9%
diesel platinum demand
diesel palladium demand
3500
1000
3000
800
2500
Thousand Ounces
Thousand Ounces
Europe 26%
Japan 12%
2000 1500
600
400
1000 200
500 0
0 2006
2008
2010
2012
2014
2006
gasoline platinum demand
2008
2010
2012
2014
2012
2014
gasoline palladium demand
1400
6000
1200
Thousand Ounces
Thousand Ounces
5000 1000 800 600 400 200
4000 3000 2000 1000
0 2006
2008
2010
2012
0
2014
2006
platinum in diesel, 2015; regional demand
Other 21%
2008
2010
palladium in gasoline, 2015; regional demand Other 14%
North America 13%
North America 27%
China 27%
China 7% Japan 6%
Europe 19%
Europe 53%
All Charts Source: GFMS, Thomson Reuters
34
Japan 13% North America
Europe
Japan
China
Other
GFms platinum GROUP METALS survey 2016
palladium section. The main reason for platinum’s solid performance therefore was the 5.1% rise in diesel vehicle production.
The introduction of Euro 6c next year will positively affect usage in diesels but only from 2016 onwards. The legislation will introduce a new testing procedure, whereby vehicles will be tested on their real driving emissions (RDE) on the road as opposed to the more controlled laboratory environment. Various stories about OEMs manipulating their test procedures, effectively underreporting their true emissions, have made headlines in recent months. Independent studies by private and public agencies confirmed this suspicion. Therefore, the introduction of this new legislation is a huge improvement in narrowing the gap between test results and real emissions, which stands at an estimated 400% at present, according to the European Commission. However, this legislation has been severely publicly criticised due to the presence of the NOx conformity factor (CF) set at 2.1. In effect the CF allows new vehicles to emit 110% of the current Euro 6 limits autocatalyst demand: europe
Platinum demand in autocatalysts also rose in Other Regions, by 3% to reach 0.7 Moz (21.6 t). This region consists of a host of countries, of which India is the most prominent. Last year, India sold 7% more vehicles, or 2.5 million in total, of which just under half were diesels. This share is considerably higher compared to North America, Japan or China, which have diesel ratios of 6%, 11% and 7% respectively. India’s government is now planning to implement the Bharat Stage (BS) VI emissions standard in 2020 from BS IV, leapfrogging BS V. This decision is ambitious, given that the current nationwide standard is still BS III. In order to achieve this standard, ultra low sulphur fuel needs to be readily available throughout the country, something that is lacking at present. Nevertheless, at some point in the near future, the move will have a further positive effect on platinum demand from our Other Region.
european Light duty Vehicle production
2500
25
2000
Rhodium
1500
1000
500
0
Light Duty Vehicle Production (millions)
Platinum Palladium
Thousand Ounces
More tangible progress has been recorded at reducing CO2 emissions, which fell from 186 g/km in 1995 to 119 g/ km last year. These are levels that only new vehicles achieve, which last year accounted for 5% of the total European vehicle fleet. In addition, on average vehicles on the road are ten years old and rising. Unsurprisingly, therefore, emissions from the transport sector are not declining. In order to achieve this, however, a more holistic approach is required combining a range of options such as a wider use of alternative powertrains, biofuels, hybrid or full electric, faster fleet renewals, intelligent transport systems (ITS), improving road infrastructure, or altering driver behaviour.
Diesel Gasoline
20
15
10
5
0 2006
2008
Source: GFMS, Thomson Reuters
2010
2012
2014
2006
2008
2010
2012
2014
Source: GFMS, Thomson Reuters; LMC Automotive
35
demand
Due to various tax advantages in many European countries, diesels account for a meaningful portion of the European vehicle fleet. Large markets outside Europe generally prefer gasoline-fuelled vehicles (this has been extended by local tax policies). Technology has evolved considerably in recent years and, in spite of what some of the headlines and company statements suggest, the technology continues to get cleaner. In fact, with the latest aftertreatment systems installed, diesels are generally less polluting than gasoline vehicles and inherently more fuel efficient, emitting approximately 15% less CO2 than its gasoline counterpart. Therefore diesels are and will remain key for OEMs in meeting the fuel economy targets of 95 g/ km in Europe by 2021.
during the introduction year of 2017, which actually corresponds more to Euro 5 legislation. This is a step in the wrong direction, some argue. However, the CF will be tightened to 1.5 (50%) by 2020.
gfms platinum GROUP METALS survey 2016
autocatalyst demand: north america
2000
Japan witnessed a contraction of platinum usage in autocatalyst of 2.6% reaching 0.27 Moz (8.4 t) in 2015. Contrary to Europe, platinum demand is strongest in gasoline driven vehicles, which make up 90% of light duty vehicle demand. Light duty gasoline vehicle sales posted an 8% decline last year, driven by the challenging economic backdrop. This trend was accompanied by a decline in production and sales volumes of on-road and off-road applications, also heavy users of platinum in their aftertreatment solutions. The LDD sector witnessed a modest increase, which curbed the overall decline.
Platinum Palladium Rhodium
Thousand Ounces
1000
500
0 2006
2008
2010
2012
2014
Source: GFMS, Thomson Reuters
On the other hand, demand for platinum in autocatalyst applications in North America fell by 7.5% to 0.46 Moz (14.4 t). A rise of platinum offtake in the LDD segment was offset by a drop in the LDG and HDV applications, which suffered from continued palladium substitution and thrifting, respectively. The VW diesel scandal did hamper LDD sales at year-end but not enough to offset the rise in platinum demand. VW faces various lawsuits from over multiple countries. An acceptable solution to the recall procedure of the affected engines in the United States has not been reached. Therefore, spillover effects of “dieselgate” are likely to be felt this year. North America has always been at the forefront of emissions legislation and has the tightest global standards. This stringency effects average vehicle loadings, which we estimate to be considerably higher compared to those in Europe. That, however, is also a function of the difference in catalyst size, which is a function of the engine size, which in turn is a reflection of the vehicle size. Vehicles for the North American market are larger than those in Europe or Japan, supporting the use of higher PGM loadings in their autocatalysts. north america Medium & heavy duty vehicle production 1500
A similar trend has been observed in China where demand for platinum in autocatalyst applications contracted by 0.4% to total 0.24 Moz (7.5 t). Similar to Japan and North America, China is predominantly a gasoline market, where diesels have yet to develop a significant rise in popularity. Emissions legislation is lagging that of Europe and North America and repeated efforts to introduce new stages have frequently been delayed due to fuel quality issues. China implemented China 5 last year in the major cities and is planning a nationwide rollout by 2018. This expansion will have a positive effect on PGMs use in the country, which is suffering from excessive levels of pollution. Tackling this issue, however, has proven to be difficult; introducing new legislation is one thing, however, ensuring compliance another.
demand from the heavy duty market Platinum demand from heavy duty applications has been steadily trending upward since 2010, rising by an average 21% per annum over the 2010-2014 period. In 2015, however, demand slightly contracted, by 0.7%, driven by a drop in vehicle production from North America and Japan. In the case of the former, in spite of a healthy recovering economy, the industrial, manufacturing and US domestic passenger car sales Diesel 6%
Non Road Mobile Machinery On road HDV
Heavy Duty Vehicle Sales ‘000s
DEmand
1500
1200
900
600
300 Gasoline 94%
0 2006
2008
2010
Source: LMC Automotive; KGP Automotive
36
2012
2014
Source: GFMS, Thomson Reuters
Electric (incl fuel cells) 0%
GFms platinum GROUP METALS survey 2016
therefore, half of the HDVs sold last year had some sort of aftertreatment installed whereas the other half relied either on SCR alone or no aftertreatment at all.
transport sectors have all been experiencing sluggish business activity. New HDV orders in Japan have similarly experienced a slowdown due to sluggish domestic economy and increased competition from abroad.
A DOC has platinum and in some cases palladium loaded and so does a DPF, although considerably less than that of a DOC. An SCR in many cases has very little platinum in the ammonia slip catalyst, which often, but not always, is added to the SCR. The filter size increases with engine size and so those fitted to HDV are considerably larger compared to LDV. Half of 2015 global HDV engines had displacements of between 5-10 litre which we categorise as medium. Large engines, between 10-15 litre, made up around 33% and the remaining 15% were small engines with an engine displacement of
