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- CRB Fundamentals - 2008 Commodity Articles

Platinum Group Metals

Platinum is a relatively rare, chemically inert metallic element that is more valuable than gold. Platinum is a grayish-white metal that has a high fusing point, is malleable and ductile, and has a high electrical resistance. Chemically, platinum is relatively inert and resists attack by air, water, single acids, and ordinary reagents. Weighing almost twice as much as gold, platinum is the heaviest of the precious metals. Platinum is the most important of the six-metal group, which also includes ruthenium, rhodium, palladium, osmium, and iridium. The word "platinum" is derived from the Spanish word platina meaning silver.

Platinum is one of the world's rarest metals with new mine production totaling only about 5 million troy ounces a year. All the platinum mined to date would fit in the average-size living room. Platinum is mined all over the world with supplies concentrated in South Africa. South Africa accounts for nearly 80% of world supply, followed by Russia, and North America.

Because platinum will never tarnish, lose its rich white luster, or even wear down after many years, it is prized by the jewelry industry. The international jewelry industry is the largest consumer sector for platinum, accounting for 51% of total platinum demand. In Europe and the U.S., the normal purity of platinum is 95%. Ten tons of ore must be mined and a five-month process is needed to produce one ounce of pure platinum.

The second major consumer sector for platinum is for auto catalysts, with 21% of total platinum demand. Catalysts in autos are used to convert most of vehicle emissions into less harmful carbon dioxide, nitrogen, and water vapor. Platinum is also used in the production of hard disk drive coatings, fiber optic cables, infra-red detectors, fertilizers, explosives, petrol additives, platinum-tipped spark plugs, glassmaking equipment, biodegradable elements for household detergents, dental restorations, and in anti-cancer drugs.

Palladium is very similar to platinum and is part of the same general metals group. Palladium is mined with platinum, but it is somewhat more common because it is also a by-product of nickel mining. The primary use for palladium is in the use of automotive catalysts, with that sector accounting for about 63% of total palladium demand. Other uses for palladium include electronic equipment (21%), dental alloys (12%), and jewelry (4%).

Rhodium, another member of the platinum group, is also 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 auto catalysts. Iridium and ruthenium are used in the production of polyvinyl chloride. As the prices of these metals change, there is some substitution. Therefore, strength of platinum prices relative to palladium should lead to the substitution of palladium for platinum in catalytic converters.

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). The NYMEX platinum futures contract calls for the delivery of 50 troy ounces of platinum (0.9995 fineness) and the contract trades in terms of dollars and cents per troy ounce. The NYMEX palladium futures contract calls for the delivery of 50 troy ounces of palladium (0.9995 fineness) and the contract is priced in terms of dollars and cents per troy ounce.

Prices - NYMEX platinum futures prices started 2007 at about $1,109 per troy ounce, and moved higher all year to finally end the year at about $1,539 per troy ounce. The rally continued into early 1008 with the price rising to about $2,140 per troy ounce in February of 2008.

NYMEX palladium futures prices started 2007 at about $335 per troy ounce, rallied to a high of about $488 per troy ounce in May, but then drifted lower to post a low of about $332 in August. From there palladium rallied to end the year at about $378. The rally continued into early 2008 with the price rising to about $495 per troy ounce in February of 2008.

Supply - World mine production of platinum in 2006, the latest reporting year, rose by +3.3% yr/yr to 221,000 kilograms, which was a record high production level. South Africa is the world's largest producer of platinum by far with 77% of world production in 2006, followed by Russia (13%), Canada (4%) and the U.S. (2%). World mine production of palladium in 2006 rose +2.3% to 224,000 kilograms, which was a record high production level. The world's largest palladium producers are Russia with 44% of world production in 2006, South Africa with 38%, Canada with 6%, and the U.S. with 6%. World production of platinum group metals other than platinum and palladium in 2006 fell by 5.4% yr/yr to 73,500 kilograms, down from the 2005 record high of 77,700 kilograms.

U.S. mine production of platinum in 2006 rose by +9.4% yr/yr to 4,290 kilograms, only slightly below the record high of 4,390 kilograms posted in 2002. U.S. mine production of palladium in 2006 rose by +8.3 yr/yr to 14,400 kilograms, only slightly below the record high of 14,800 kilograms posted in 2002. U.S. refinery production of scrap platinum and palladium in 2006 rose +8.2% to 12,530 kilograms, up from last year's record low of 11,580 kilograms but still well below the 8-year high of 24,790 kilograms in 2001.

Demand - The total of platinum-group metals sold to consuming industries in the U.S. in 2004 (the latest data available) rose +7.1% to 91,434 kilograms. The two main U.S. industries that use platinum are the auto industry, which accounts for about 74% of U.S. platinum usage, and the jewelry industry, which accounts for about 26% of U.S. platinum usage.

Trade - U.S. imports of refined platinum and palladium in 2006 for consumption rose +1.0% yr/yr to 287,756 kilograms, which was well above the 11-year low of 222,356 kilograms seen in 2002. U.S. exports of refined platinum and palladium rose sharply by +109.7% to a record high of 103,590 kilograms. The U.S. relied on imports for 94% of its platinum and palladium consumption in 2007.




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