Commodities | Mar 16 2011
– Earthquake to lower Japanese auto production
– This implies lower demand for PGMs
– Barclays sees further short-term price pressures
– Market balance for PGMs should continue to tighten long-term
By Chris Shaw
Among the precious metals, Barclays Capital suggests the impact of the Japanese earthquake is greatest for platinum group metals (PGMs). This reflects Japan's importance to the global platinum and palladium markets, accounting for about 15% and 16% of respective demand.
As Barclays notes, car manufacturers in Japan have announced production suspensions since the earthquake struck. Toyota will reduce output by around 40,000 vehicles by closing operations from March 14-16, while Nissan has halted production until at least March 18 and Honda until March 20.
As an estimate of the impact on the PGM markets, Barclays suggests this lost auto production could equate to a near-term drop in PGM demand from auto-catalyst consumption of around 15,000 ounces of both platinum and palladium.
But as Barclays points out, the loss won't only be evident in auto demand, as Japan is also a large consumer of platinum jewellery. Demand in this market is also expected to suffer in the shorter-term, which is significant given Japanese platinum jewellery demand accounts for about 12.5% of that market's global total.
Platinum physically-backed ETPs (Exchange Traded Products) are most closely linked to physical demand according to Barclays. This suggests any reduction in exposure in this market by investors could exacerbate any price falls stemming from reduced auto industry demand for the metal.
This is particularly the case given platinum ETP holdings at present are at record highs. In contrast, palladium holdings are around 70,000 ounces short of peak levels.
Both platinum and palladium prices have come under pressure in the past couple of days as negative demand factors are priced into the respective markets. This pressure should remain near-term, but longer-term Barclays expects the market balance for both metals will continue to tighten.
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.