Johnson Matthey PLC · LSE:JMAT
Johnson Matthey — Platinum 2008
44 slides from Johnson Matthey's conference presentation, May 19, 2008
Slide 1: Platinum 2008
Platinum 2008 19th May 2008 Good morning to everyone, and welcome again to Platinum 2008. I’m going to concentrate on the busy worlds of Pt and Pd, and finish with a couple of slides on Rh, but anyone would like some more detail on Rh or the minor metals, we’ll be happy to take them in the Q & A ses
Slide 2: Platinum
Platinum So, starting with Pt. I’ll give a review of how we saw the platinum market over 2007 and then look a bit into the future 2
Slide 3: Platinum: Key features
Platinum: Key features • Platinum market in deficit by 480,000 oz in 2007 • Supplies fall due to South African problems • Autocatalyst demand grows 8.2% due to diesel emissions control • Jewellery demand resilient: falls only marginally • Investment demand climbs due to ETFs • Platinum records a ser
Slide 4: Platinum Supply and Demand
Platinum Supply and Demand ’000 oz 2006 2007 % Supply 6,830 6,550 (4.1) Demand 6,475 7,030 +8.6 Movements in stocks 355 (480) www.platinum.matthey.com In number terms, this means: a 4.1% reduction in supply to 6.550m ozs. a 8.6% increase in platinum demand to 7.030m ozs This produced a deficit of 48
Slide 5: Platinum supply (Mototolo view)
www.platinum.matthey.com So, talking in a little more detail first on the supply side… This is the view from Everest on the Eastern limb of the Bushveld, looking North at Mototolo, with the Boosydendal and Der Brochen properties (still to be developed of course) on the left.
Slide 6: Platinum Supply Falls 4.1%
Platinum Supply Falls 4.1% million oz 8 • 2007 South African output 6.830 6.550 drops to 5.035 million oz due 7 to a combination of strikes, 6 safety issues and processing problems 5 4 • Russian production falls marginally to 910,000 oz 3 • North American production 2 falls slightly to 325,000 oz 1
Slide 7: South African Platinum Supply
South African Platinum Supply • Supplies fall from 5.295 million oz in 2006 to 5.035 million oz in 2007 • Problems include: • Lonmin smelter shutdown • Strikes surrounding wage negotiations • Continued focus on improving safety • Finding and retaining skilled staff • Some growth at mines such as Mot
Slide 8: Platinum Demand Climbs by 8.6%
Platinum Demand Climbs by 8.6% million oz 8 • Total demand climbs 555,000 6.475 7.030 oz to 7.03 million oz 7 6 • Gross autocatalyst demand rises by 320,000 oz 5 • Jewellery demand drops by 4 55,000 oz to 1.585 million oz 3 • Industrial demand climbs 2 6.0% to 1.940 million oz 1 • ETFs boost investm
Slide 9: Platinum demand areas
www.platinum.matthey.com Let’s look at each of these demand areas in a little more detail… This picture is of some scrap Japanese jewellery being returned for recycling.
Slide 10: Platinum Demand: Autocatalyst
Platinum Demand: Autocatalyst million oz • Gross auto sector platinum 5 3.905 4.225 purchases rise by 8.2% to 4.225 million oz 4 • Diesel sector drives growth 3 • Increasing fitment of DPFs • Further growth in HDD market 2 • Japan and Korea continue to use 1 platinum in autocatalysts • Substitution
Slide 11: Platinum Demand: Autocatalyst
Platinum Demand: Autocatalyst million oz 5 Gasoline 4 3 2 1 0 2003 2004 2005 2006 2007 www.platinum.matthey.com This chart shows the success that the global auto makers have had in reducing their platinum usage in gasoline catalysts over recent years in response to a rising price. 11
Slide 12: Platinum Demand: Autocatalyst
Platinum Demand: Autocatalyst million oz 5 Gasoline Diesel 4 3 2 1 0 2003 2004 2005 2006 2007 www.platinum.matthey.com But this one shows the overall picture with the diesel market consuming more and more platinum each year, such that the overall total is growing. 53% of new cars sold in Europe last
Slide 13: Platinum Demand: Jewellery
Platinum Demand: Jewellery million oz 2.0 • Jewellery demand resilient in 1.640 1.585 the face of high and volatile prices 1.5 • Global manufacturer purchases of new metal fall by 1.0 3.4% to 1.585 million oz • Demand grows in China and 0.5 Europe • Tougher times in North America and Japan 0.0 2006
Slide 14: Platinum: Chinese Jewellery
Platinum: Chinese Jewellery million oz 1.4 • Chinese manufacturers buy 1.2 2.6% more metal, at 780,000 oz 1.0 • Demand supported by beads 0.8 in early 2007 and Olympic memorabilia in late 2007 0.6 • White gold applies some 0.4 pressure to the platinum jewellery market as prices rise 0.2 • High price
Slide 15: Platinum Demand: Industrial
Platinum Demand: Industrial million oz 2.0 1.830 1.940 • Industrial demand climbs 6.0% to 1.94 million oz 1.5 • Electronics demand rises on hard disk production 1.0 • Petroleum refining and glass purchases rise • Limited price sensitivity seen 0.5 0.0 2006 2007 Chemical Electrical Glass Petroleum Ot
Slide 16: Platinum investment
www.platinum.matthey.com So with all these demand areas showing growth, what about investment ? Platinum bars owned through the Swiss ETF sitting nicely allocated in a Zurich vault.
Slide 17: Platinum Demand: Investment
Platinum Demand: Investment '000 oz 100 • Investment demand rises to -40 +170 170,000 oz in 2007 75 • Two physically-backed ETFs 50 launched • Net purchases reach 195,000 oz 25 • Coin sales fairly flat in North 0 America -25 • Net disinvestment of large bars in Japan -50 2006 2007 www.platinum.matth
Slide 18: Platinum Outlook
Platinum Outlook • Automotive demand likely to grow as emerging economies offset weak US performance • Effects of high prices in early 2008 not seen yet but jewellery demand likely to be lower • ETF activity may accentuate volatility • South African supply problems will impact output but this could
Slide 19: Platinum Price Correlation
Platinum Price Correlation Annual Average Price Cumulative Surplus/Deficit ($/oz) (‘000 oz) 1,400 1,000 1,200 500 1,000 0 800 -500 600 -1,000 400 -1,500 200 -2,000 0 -2,500 1975 1979 1983 1987 1991 1995 1999 2003 2007 www.platinum.matthey.com This is I think a rather interesting slide. Here we are l
Slide 20: Forecast Platinum Price for the Next 6 Months
Forecast Platinum Price for the Next 6 Months $ per oz 2,500 2,250 2,000 1,750 1,500 1,250 1,000 J A J O J A J O 2007 2008 www.platinum.matthey.com Looking at the platinum price in 2007 we can see the combined effect of a weak dollar, a strong commodities market, and the deficit, drove the price upw
Slide 21: Forecast Platinum Price for the Next 6 Months
Forecast Platinum Price for the Next 6 Months $ per oz 2,500 2,250 $1,775 – $2,500 2,000 1,750 1,500 1,250 1,000 J A J O J A J O 2007 2008 www.platinum.matthey.com And so here is our price forecast for the next 6 months. Why the low end at 1775 ? – simply because a fall in investor confidence could
Slide 22: Palladium
Palladium Turning to palladium… 22
Slide 23: Palladium: Key features
Palladium: Key features • Palladium market in fundamental surplus by 1.75 million oz in 2007 • Supplies rise, boosted by Russian stock sales in early 2007 • Vehicle production growth and substitution for platinum drive autocatalyst demand 10.8% higher • Chinese jewellery demand drops • ETFs reinvigo
Slide 24: Palladium Supply and Demand
Palladium Supply and Demand ’000 oz 2006 2007 % Supply 7,950 8,585 +8.0 Demand 6,605 6,835 +3.5 Movements in stocks 1,345 1,750 www.platinum.matthey.com Numerically… Palladium supply rose by 8% to 8.585m ozs. And palladium demand increased by three and a half per cent to 6.835m ozs. The results is a
Slide 25: Palladium supply (Norilsk smelting)
www.platinum.matthey.com Looking first at the supply side for Pd.. This is the smelting operation at Nadezhda in Norilsk.
Slide 26: Palladium Supply Rises by 8.0%
Palladium Supply Rises by 8.0% million oz 9 7.950 8.585 • Supply grows 635,000 oz to 8.585 8 million oz 7 • North American supplies almost 6 5 flat 4 • South African supply falls 3 marginally to 2.770 million oz: 2 supported by expansion and sales 1 of refined stocks 0 2006 2007 S.Africa Russia • Ru
Slide 27: Palladium demand (dental alloys)
www.platinum.matthey.com But If we move to the demand side first. This is a picture of some Pd and Au alloys in the forms used by the dental industry.
Slide 28: Palladium Demand Rises by 3.5%
Palladium Demand Rises by 3.5% million oz 8 • Global demand grows by 6.605 6.835 230,000 oz to 6.835 million oz 7 6 • Autocatalyst demand rises on 5 substitution for platinum and 4 growing vehicle production 3 • Jewellery demand drops 2 mainly due to recycling in 1 China 0 • Strong demand in electro
Slide 29: Palladium Demand: Autocatalyst
Palladium Demand: Autocatalyst million oz 5 • Palladium continues to 4.015 4.450 replace platinum in gasoline 4 • Increasing market share of 3 Pt/Pd technology in diesel 2 • Growth in vehicle production 1 in emerging economies offsets weakness in the North 0 American market 2006 2007 China Japan N.
Slide 30: Pgm choice in Autocatalysts
Pgm choice in Autocatalysts Gasoline percentage of pgm used (Pt/Pd) 100 75 50 25 0 2005 2006 2007 Palladium Platinum www.platinum.matthey.com More than three quarters of the metal – excluding rhodium – used in the gasoline sector is now palladium and although you can see that this is increasing, the
Slide 31: Pgm choice in Autocatalysts
Pgm choice in Autocatalysts Gasoline Diesel percentage of pgm used (Pt/Pd) percentage of pgm used (Pt/Pd) 100 100 75 75 50 50 25 25 0 0 2005 2006 2007 2005 2006 2007 Palladium Platinum Palladium Platinum www.platinum.matthey.com If you compare that with the diesel sector, the same trend can be seen,
Slide 32: Turning to jewellery…
www.platinum.matthey.com Turning to jewellery…
Slide 33: Palladium Demand: Jewellery
Palladium Demand: Jewellery million oz 1.50 • Chinese new palladium purchases fall by 260,000 oz 1.25 to 500,000 oz 1.00 • Manufacturing margins fall, 0.75 hitting demand 0.50 • Significant use of recycled old palladium stock 0.25 • Retail sales picture mixed 0.00 2003 2004 2005 2006 2007 • healthy
Slide 34: Palladium Jewellery Positives
Palladium Jewellery Positives • Palladium is selling well in some markets in China • Old Pd950 stock may now be running out • Growing strength in the North American market, particularly in men’s wedding rings • European demand grows in 2007 • Further co-ordinated market development activity now like
Slide 35: Palladium Demand: Industrial and Dental
Palladium Demand: Industrial and Dental million oz 2.5 2.350 2.385 • Industrial palladium demand grows by 1.2% to 1.750 2.0 million oz 1.5 • Dental purchases grow as the 1.0 palladium price is outpaced by the gold price 0.5 0.0 2006 2007 Dental Industrial www.platinum.matthey.com On the industrial s
Slide 36: Palladium Demand: Investment
Palladium Demand: Investment '000 oz • Palladium investment demand 300 50 260 grows to 260,000 oz 250 • ETF launches reinvigorate 200 investment market 150 • Demand from coins and bars 100 in North America turns negative in 2007 50 0 2006 2007 www.platinum.matthey.com In the investment sector, the m
Slide 37: Palladium Outlook
Palladium Outlook • Palladium to make further inroads into the diesel catalyst sector • Increases in demand in industrial sector expected, driven by electronics growth • Jewellery demand outlook improving • Growth in North America and Europe • Recycling rates may fall in China • Russian shipments in
Slide 38: Forecast Palladium Price for the Next 6 Months
Forecast Palladium Price for the Next 6 Months $ per oz 600 500 400 300 J A J O J A J O 2007 2008 www.platinum.matthey.com So, looking at the price performance in 2007, palladium strengthened on the back of a weak US Dollar and continued investor purchasing. The price rise in early 2008 clearly refl
Slide 39: Forecast Palladium Price for the Next 6 Months
Forecast Palladium Price for the Next 6 Months $ per oz 600 500 $400 – $575 400 300 J A J O J A J O 2007 2008 www.platinum.matthey.com So where does that leave us ? We currently forecast that palladium supplies will fall this year – subject to sales of Russian State stocks falling – and that demand
Slide 40: Rhodium
Rhodium And we will end with a brief look at the rhodium market… 40
Slide 41: Rhodium Remains in Deficit
Rhodium Remains in Deficit • Market in deficit again in $ per oz Rhodium price 10,000 2007, by 34,000 oz 9,000 8,000 • Supplies rise by 20,000 7,000 oz to 822,000 oz due to 6,000 sales from stock 5,000 4,000 • Demand climbs to 3,000 856,000 oz 2,000 J A J O J A J O J A • Price hits a series of 2006
Slide 42: Rhodium Demand Climbs by 2.1%
Rhodium Demand Climbs by 2.1% '000 oz 1,000 • Total demand climbs 2.1% to 838 856 856,000 oz 800 • Gross autocatalyst demand 600 rises by 1.9% to 879,000 oz • Autocatalyst recycling rises by 400 7.0 % 200 • Other demand rises by 9.6% 0 2006 2007 Auto Glass Other www.platinum.matthey.com Just a coupl
Slide 43: Rhodium Outlook
Rhodium Outlook • Strong growth in vehicle manufacturing in China, Russia and elsewhere to support rhodium demand • Growth in LCD glass capacity positive for demand • Continued high price to drive thrifting in autocatalyst and glass sectors • Rhodium production hit by South African supply problems b
Slide 44: Platinum 2008 - Thank you
Platinum 2008 19th May 2008 Thank you. 44