Platinum prices trended higher in 2002. After a decline from June in to August when prices moved from about $560 per ounce back to almost $500, prices started to move higher again approaching $600 per ounce in October. Spot platinum prices exceeded $600 per ounce in October before prices pulled back once again. In addition to the price strength in platinum, platinum also well outperformed gold. While platinum had a premium to gold of about $200 per ounce in the summer of 2002, that premium approached $300 per ounce in October 2002.

There were a number of reasons offered for the strength in platinum especially relative to other metals. For one, demand for platinum remained strong. Platinum as an industrial metal finds use in a number of markets. In particular, platinum is used in pollution control devices and in catalytic converters for automobiles and trucks. It finds widespread use in diesel engines which are used in Europe. This is an area that has contributed to much of the growth in platinum demand. Platinum jewelry demand has been a more mixed picture. While overall demand for platinum in jewelry has declined some, one area of growth has been China. In China, a major market for platinum, demand for jewelry has increased. Platinum also benefited for the likelihood that global economic growth would start to increase going from 2002 into 2003. Very low interest rates continued to support the automotive sector, a major user of platinum.

The largest producers of platinum are South Africa and Russia. Developments In these two countries can have a major influence on the trend in both platinum prices as well as palladium prices. In South Africa there continued to be important developments. The major South African platinum producers have indicated plans to increase production in the future. At the same time, the South African government has been putting together a new set of mining regulations that will impact the future production of all South African metals. A draft of the new rules indicated a goal that within ten years 51 percent of new mining ventures and 30 percent of existing ventures be black-owned. The South African mining industry has agreed to these changes and will provide 100 million rand to aid new entrants into the mining industry. It is not known what impact this will have on the platinum mining industry. If there are increases in the cost of production, it could result in some decline in production.

While platinum prices showed strength in 2002, the same could not be said for palladium which continued to lag its sister metal. Russia is the world's largest producer of palladium. Palladium prices traded just above $300 per ounce but in early 2001 palladium prices skyrocketed to more than $1000 per ounce on concerns about the ability of Russia to deliver on contracted sales of the metal. The palladium market has always been concerned early in the calendar year about Russian intentions to deliver the metal on a timely basis. Russia has acted to alleviate these concerns and has been taking steps to make its industry more transparent. Russia's largest producer of palladium is Norilsk Nickel. Norilsk Nickel indicated that it would hold to its policy of not selling any palladium into the spot market in 2003. The company uses long-term contracts to supply metal to the market and had reached a five year agreement to supply the largest automaker in the U.S. with platinum, palladium and rhodium.

The U.S. Geological Survey reported that U.S. production of platinum in 2001 was 3,600 kilograms, an increase of 16 percent from the previous year. In the U.S., the Stillwater Mine is the only primary platinum-group metals producer. In 2001, the Montana mine produced more than 15,000 kilograms of platinum and palladium from more than 400,000 tonnes of ore. South Africa was the largest producer of platinum in 2001 with output of 122,000 kilograms, up 7 percent 2000. Production by Russia was 29,000 kilograms, an increase of 45 percent from 2000. Production by Canada was 6,000 kilograms, up 10 percent from the previous year.

World mine production of palladium in 2001 was estimated at 177,000 kilograms, an increase of 2 percent from the previous year. Russian production of palladium was 90,000 kilograms, down 4 percent from 2000. South African production was 59,000 kilograms, an increase of 6 percent from the previous year. U.S. production of palladium in 2001 was 12,000 kilograms, an increase of 17 percent from the previous year. World reserves of platinum-group metals are estimated to be 72 million kilograms.

Rhodium is used in the automotive industry in pollution control devices. To some extent palladium has replaced rhodium. Iridium is used to process catalysts and it has also found use in some autocatalysts. Iridium and ruthenium are used in the production of polyvinyl chloride. As prices for these metals change, there is some substitution. The strength of platinum prices relative to palladium should lead to the substitution of palladium for platinum in catalytic converters. Palladium is less resistant than platinum is poisoning by sulfur and lead.

U.S. imports for consumption of palladium in 2001 were 220,000 kilograms, up 22 percent from the previous year. Imports of platinum for consumption in 2001 were 73,000 kilograms, down 22 percent from the previous year. Imports of rhodium in 2001 were 11,000 kilograms, down 40 percent from 2000. Imports of ruthenium were 5,500 kilograms, down 74 percent from 2000. Imports of iridium were 3,500 kilograms, up 30 percent from the year before while osmium imports were 70 kilograms, down 47 percent.

Futures Markets

Platinum futures and options and palladium futures are traded on the New York Mercantile Exchange (NYMEX). Platinum and palladium futures are traded on the Tokyo Commodity Exchange (TOCOM).

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here

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