Swiss platinum imports hit a 4-year low in April on the back of reduced supply from South Africa. At the same time, however, sales were down 27% in the first five months of 2012 compared to the first five months of 2011.

Demand Developments

Mining companies have come increasingly under pressure over the past year as a drop in demand from carmakers in Europe, platinum biggest autocatalyst market, has prompted a slump in platinum prices. While the Chinese and US auto markets are dominated by gasoline cars for which palladium is utilized, over 50% of European car sales are diesel-based.

Diesel car autocatalysts are still predominantly relying on platinum for their construction, so strong auto sales in Europe are fundamental for a positive platinum outlook. Depressed automobile demand at global level has weighed on platinum and palladium prices in the first seven months of 2012, however, CPM Group expects the platinum market to be in a “substantial deficit this year due to lower South African and Russian output” and recovery of demand from Japan. Although diesel cars in the US currently account for only 5% of total vehicles sold, recent regulatory advancements and high gasoline prices might prompt a shift towards more fuel-efficient vehicles. US clean diesel auto sales increased by 27.5% in the first half of 2012. With Obama’s 35 mpg CAFE/CO2 objective set for 2016, platinum demand might find support in renewed focus on diesel engines.

Conclusions

Supply disruptions have historically been a major driver of PGM prices, particularly for platinum as the impact on the platinum price of the recent strikes at South Africa’s Marikana and Rustenburg mines has demonstrated. The unpredictability of the labor market in South Africa is also having a negative impact on platinum and palladium producers’ margins pushing producers to place their operations on care and maintenance as uneconomical. On-going concerns in Europe have depressed auto sales in this area, weighing on platinum prices in particular.

Although in the medium to longer term we remain in favor of the fundamentals of palladium over platinum, short-term prospects appear to be favoring platinum because of labor-driven supply disruptions. Any potential contagion to other large miners in South Africa is likely to continue to have a significant impact on the price of platinum as expected production is further reduced.

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