Globally, the mining and minerals sector has faced a challenging few years.
Calendar year 2016 was positive for the automotive industry, with global light-duty vehicle sales estimated to have reached 93 million units on the back of continued growth in the US, Western Europe and China, despite a slowdown in sales in Japan, Eastern Europe and Latin America.
Despite this strong growth and the adoption of stricter emission legislation globally, the continued preference for palladium over platinum in catalyst systems remains a concern and is not sustainable in our view. The automotive sector needs to align long-term use with the ratio in which the metals are mined to ensure sustainable supply, which will require automakers to switch back to platinum in the near future. Current platinum/palladium price differentials are at a six year high, providing strong financial impetus for such switching.
The Chinese market remains the major consumer of platinum jewellery globally. Structural changes in the Chinese economy have impacted consumer behaviour and indications are that platinum jewellery retails sales may have dropped by as much as 9% during 2016. However, other markets have offset some of the declines from China, particularly India, which has grown by 23%.
We continue to support the Platinum Guild International (PGI). Its stated strategy aims to arrest the decline in Chinese jewellery demand by aligning its marketing efforts to the changing socio-economic landscape in China.
The platinum and palladium Exchange Traded Funds (ETFs) both experienced liquidations during 2016. Palladium liquidations were significant at 640 000 ounces, largely due to strong market fundamentals and rising metal prices, which incentivised profit-taking. Platinum experienced strong investment demand for small bars and coins in Japan with accumulative investment of approximately 425 000 ounces during 2016, offsetting a modest 9 000 ounce ETF liquidation during the year.
The platinum paper markets (NYMEX/TOCOM) remained relatively stable during 2016, with a modest 65 000 ounce decline. Palladium, however, followed its strong physical supply/demand fundamentals and increased by 710 000 ounces during the year.