th November 2010 16 th November 2010 16 www.platinum.matthey.com - - PDF document

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16 16th

th November 2010

November 2010

Good morning everyone, and welcome to Platinum Interim Review 2010. As usual, I’m going to concentrate mainly on what’s been happening in the Pt and Pd markets, then briefly cover developments in the rhodium market. If anyone would like some more detail on Ru or Ir, we’ll be happy to take them in the Q & A session after the presentation. Please note that, as in May, we now report gross demand and recycling figures separately for the electrical and jewellery sectors, in the same way as we do for autocatalyst. Other than that, this presentation will broadly follow the same format as in previous years.

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Platinum Platinum

Starting with platinum…..

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Platinum: Key features 2010 Platinum: Key features 2010

• Platinum market in surplus by 290,000 oz in 2010
• Supplies forecast to remain almost flat at 6.01 million
• unces, just 15,000 oz lower than in 2009
• Gross demand expected to recover strongly as

automotive purchases rise by 37% and industrial purchases increase by 51%

• Jewellery demand forecast to soften by 14% while

investment demand forecast to reduce by 34%

• Recycling of platinum set to increase by 31%

supported by higher prices

The platinum market will be in surplus by 290,000 oz Platinum supplies are expected to remain almost flat as South African and North American production decreases Gross demand will recover strongly, particularly in the automotive and industrial sectors as consumer confidence increases. Jewellery demand will soften as the impact of the higher platinum price is felt. Investment demand will be positive due to strong growth in the US but overall will be lower than in 2009 as profit-taking in the more mature exchange traded funds constrains new demand. Platinum has traded considerably higher so far in 2010 than the previous year, with prices on average 38 per cent higher in the first nine months of this year. This has driven greater levels of recycling, but overall net demand for platinum will increase.

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Platinum Supply and Demand Platinum Supply and Demand

290 635 Movement in stocks 6.1 5,720 5,390 Net Demand 31.0 (1,840) (1,405) Recycling 11.3 7,560 6,795 Gross Demand (0.2) 6,010 6,025 Supply % change 2010 2009 ‘000 oz

Putting this in numerical terms, we forecast a decline in supplies of just 0.2 per cent. Gross demand, however, is expected to increase by

• ver 11 per cent

Recovery of platinum from open-loop recycling is expected to increase by 31 per cent Net demand is forecast to rise by 6 per cent to 5.72 million ounces. We anticipate a smaller surplus this year compared with last year’s revised surplus of 635,000 ounces

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Platinum Supply down 0.2% Platinum Supply down 0.2%

• South African supplies to

decrease slightly to 4.59 million oz

• Russian production to grow

slightly to 810,000 oz

• Supplies from other regions

also forecast to grow marginally to 615,000 oz

1 2 3 4 5 6 7 2009 2010

RSA Russia Others

million oz 6.025 6.010

We forecast that supplies from South Africa will decrease slightly by 50,000 oz to 4.59 million ounces in 2010 due to a series of safety stoppages, strikes, and shaft closures last year, and also high levels of sales from stocks in 2009 which we do not see as being repeated this year. Although there will be higher

• utput from new and recently reopened mines, it won’t

compensate for those affected by closures and stoppages. Supplies from current Russian mining operations are expected to grow slightly to 810,000 oz because of increased pgm output from Norilsk Nickel’s operations in its Taimyr and Kola Peninsula operations. Elsewhere, production is expected to be mostly flat. Platinum output from North America is forecast to decrease to 210,000 oz in 2010 mainly due to strike action at Vale’s Sudbury operations. Production from Zimbabwe is expected to rise by 50,000 oz in 2010 as expansions reach full capacity.

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Gross Platinum Demand to rise by Gross Platinum Demand to rise by 11.3% 11.3%

• Total demand forecast to increase

by 765,000 oz to 7.56 million oz

• Gross autocatalyst demand set to

rise by 37% to 2.99 million oz

• Industrial demand to soar by 51%

to 1.72 million oz

• Gross jewellery demand to fall by

14% to 2.42 million oz

• Physical investment expected to fall

by 34% to 435,000 oz in 2010

1 2 3 4 5 6 7 8 2009 2010 Autocatalyst Jewellery Investment Others million oz 6.795 7.560

Gross autocatalyst demand for platinum is forecast to recover strongly, rising by 37 per cent to 2.99 million

• unces. We expect to see a recovery in sales of diesel

cars, particularly in Europe, favouring platinum

• demand. A recovery in sales of heavy duty diesel

vehicles in Europe and North America is also forecast to lift platinum demand, supported by heavy duty diesel legislation in North America. Gross industrial demand is forecast to recover strongly in 2010, raising platinum demand by 51 per cent to 1.72 million ounces on the back of increased sales of electrical and consumer goods. After an impressive year in 2009, gross jewellery demand is expected to fall by 14 per cent in 2010 to 2.42 million ounces as consumers feel the effect of higher platinum prices. We are also unlikely to get a repeat of the stockbuilding that was a feature of 2009. Investment demand is likely to remain strong but lower than in 2009. ETF investment has proved popular in North America but there has been profit taking in the more mature European funds. The Japanese large bar market is set to fall in 2010, and overall investment demand is forecast to be 34 per cent lower than last year at 435,000 oz.

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Platinum Demand: Gross Platinum Demand: Gross Autocatalyst Autocatalyst

Changes in gross metal demand by region (2010 vs. 2009) : Europe up 46% Japan up 35%

• N. America

up 16% China up 35% RoW up 34%

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2009 2010

Europe Japan North America China Rest of the World

million oz 2.185 2.985

If we look at gross autocatalyst demand by region, the picture is markedly different to last year, with every region experiencing an increase in gross demand. By the way, we are assuming that there are no strategic purchases of metal by car companies this year. I’ll come to Europe in a minute… Looking at the Japanese automotive sector we forecast demand will rise by 35 per cent to 535,000 ounces, reflecting projected growth in the Japanese vehicle sector to almost 9 million units. Although both car sales and automotive platinum demand are rising in 2010, this is still some way from the demand level seen in 2008. Concerns

• ver the economy still weigh heavily on domestic sales of

vehicles, as well as exports. Demand is also expected to recover in North America by 16 per cent to 430,000 ounces on the back of economic recovery and higher sales of heavy duty diesel vehicle which are are now subject to more stringent emissions control legislation. China looks set to remain the biggest car manufacturing country by volume, with output for 2010 predicted at almost 16 million vehicles. Growth in the sector is reflected in platinum demand, which is set to rise by 35 per cent to 115,000 ounces. Finally, the Rest of the World region is expected to see a 34 per cent increase in platinum demand for the automotive sector as output improves. The South Korean automotive industry is expected to fare well in export markets, while the car industries in India and Brazil are expected to continue their high rates of growth.

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Platinum Demand: European Platinum Demand: European Autocatalyst Autocatalyst

Shift back to diesel vehicle production in Europe, stimulating platinum demand

2009 2010

Diesel 38% Diesel 47% Gasoline 62% Gasoline 53%

Returning to the increase in platinum demand in the European automotive sector, that 46% increase in forecast demand to 1.4 million ounces is due to two principal factors: increased overall production of vehicles, and also to an increase in the market share

• f diesel vehicles after a temporary decline in 2009.

Our estimate of the share of diesel vehicles in Europe is 47% for 2010, a recovery from 38% last year. Various European government incentive schemes, designed to stimulate new car sales in 2009, had the effect of increasing sales of small, gasoline vehicles while diesel vehicle demand declined proportionally. Poor economic conditions and reduced credit availability in 2009 deferred purchases of fleet vehicles, which are predominantly diesel. A return to more normal car buying habits, as well as increased fleet sales, is expected to boost platinum demand in diesel vehicles in Europe.

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Platinum Demand: Gross Platinum Demand: Gross Jewellery Jewellery

Gross demand for jewellery forecast to fall by 14% in 2010:

• Chinese demand forecast to fall

21% to 1.65 million ounces

• Growth in North America due to

higher exports and improved consumer confidence

• European and Japanese demand

to remain flat

0.0 0.5 1.0 1.5 2.0 2.5 3.0 2009 2010

Europe Japan North America China Rest of the World

million oz 2.810 2.420

Moving on to jewellery demand, following a strong year in 2009, gross platinum demand is expected to fall by 390,000 ounces, lowering gross platinum jewellery demand to 2.42 million ounces. Gross Chinese jewellery demand, which provided some support to the platinum market in 2009, is forecast to fall by 21 per cent to 1.65 million ounces in

• 2010. More on that in a moment.

Gross platinum jewellery demand in North America is forecast to grow in 2010 in line with higher exports and an improved economic situation which is set to lift jewellery demand by 45,000 ounces to 180,000

• unces.

We have substantially revised our 2009 figure for platinum jewellery in Japan downwards to 335,000

• unces, due to a reassessment of the impact of

economic conditions on demand for fashion jewellery. Gross demand from the Japanese jewellery market is forecast to soften by a further 5,000 ounces in 2010. However, purchases of Kihei chain, bought by some consumers as an investment, are expected to hold up well in 2010. We forecast an additional 10,000 oz demand for platinum jewellery in India this year as stocks are built and consumer sales increased thanks to concerted marketing efforts across the country.

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Estimated monthly demand in the Chinese jewellery market Estimated monthly demand in the Chinese jewellery market

Monthly average platinum price ($)

50 100 150 200 250 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 thousand ounces 500 1000 1500 2000 2500 US$/oz

Looking in more detail at the Chinese jewellery sector: higher platinum prices have generally reduced purchasing by wholesalers and retailers in 2010. The tradition of buying in price dips has continued again this year. Evidence suggests that full stock levels, as a result of stock building in 2009, have also reduced gross new demand in China. The elevated price levels have encouraged greater scrapping of old platinum jewellery, raising recycling levels by about a third and contributing to our reduced net demand figure of 1.2 million ounces.

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Platinum Demand: Industrial Platinum Demand: Industrial

Industrial demand to rise by 51% in 2010:

• Chemical industry set to recover on

the back of new demand by 55%

• Electrical demand to increase as

hard disk drive sector picks up

• Glass sector saw strong buying in

H1 2010 as new capacity was built

• Petroleum refining expected to

soften with little new plant construction in 2010

• Medical and other applications to

show solid demand

0.0 0.5 1.0 1.5 2.0 2009 2010

Chemical Electrical Glass Petroleum Other

million oz 1.140 1.720

Looking in detail at industrial demand… The industrial sector forecast to see the largest growth in platinum demand in 2010 is the glass sector. Net platinum use in glass manufacturing is forecast to soar from 10,000 oz in 2009 to 365,000 oz in 2010. Last year we saw a good deal of platinum being returned from decommissioned CRT glass factories in Asia, which depressed our glass demand figure. Our demand figure this year is not impacted by those one-

• ff closures and indeed we have seen the opening of

new LCD glass manufacturing facilities in the early part of this year in China, Japan and the Rest of the World region. The chemical sector is expected to increase platinum purchases by 55 per cent to 450,000 oz as plants are run at higher capacity, boosting demand for process catalysts and platinum gauze in nitric acid production and as new production facilities are opened in China. We forecast that demand for platinum in the electrical sector will also pick up as the consumer electronics sector recovers from recession. Increased consumer and business spending on electrical goods is set to benefit demand for platinum in applications such as hard disk drives.

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Platinum Demand: Investment Platinum Demand: Investment

Identifiable physical platinum investment demand to fall in 2010 by 34% to 435,000 oz

• Surge in investment demand

for US-based ETF

• Redemptions of ETF positions

a feature of the more mature funds

• Large bar investment demand

to fall due to rising prices

100 200 300 400 500 600 700 2009 2010

Europe Japan North America China Rest of the World

'000 oz 660 435

Turning to investment… Investment flows into a new US-based platinum ETF, launched in January 2010, saw net platinum ETF holdings soar during the first quarter of 2010. Demand for large platinum bars for the retail physical investment market in Japan is expected to be around 50,000 oz in 2010, a reduction in demand of around 110,000 oz compared with 2009. Rising Pt prices this year have encouraged profit-taking, thereby limiting net new demand for large bars in Japan, the principal market for large bar trading. Although consumer demand for coins has been high, these were released in limited numbers therefore our gross coin and small bars demand figure is anticipated to fall to 15,000 oz in 2010.

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Platinum Demand: Investment Platinum Demand: Investment

200,000 400,000 600,000 800,000 1,000,000 1,200,000 Cumulative Holdings (oz) 600 900 1,200 1,500 1,800 2,100 2,400 Price ($/oz) ETFS‐London ETFS‐Australia ZKB JB ETFS‐US Price

2007 2008 2009 2010

Looking in more detail at the ETF investment market,

• verall the picture is highly positive, with a large

amount of new physically backed ETF investment in North America this year. We have seen some profit taking in the more mature European funds. In Europe, we anticipate that purchasing of new ETF positions will be largely offset by closing of existing ones. As a result we forecast that ETF investment will be some 20,000 oz lower overall than in 2009. There has of course been a good deal of activity in ETFs in recent weeks in response to high platinum prices and economic uncertainty, reflected in this

• chart. For the year as a whole we anticipate around

360,000 oz of new ETF investment demand - however the market remains fairly volatile.

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Platinum Recycling Platinum Recycling

31.0 (1,840) (1,405) Total Recycling 30.1 (735) (565) Jewellery (10) (10) Electrical 31.9 (1,095) (830) Autocatalyst % change 2010 2009 ‘000 oz

As in our May Review, we quantify recycling separately for automotive, electrical and jewellery. Platinum has traded considerably higher so far in 2010 than the previous year, with prices on average 38 per cent higher in the first nine months of this year. This has driven greater levels of recycling. Recovery of platinum from scrapped automotive catalysts is forecast to increase by 32% to 1.1 million

• unces in 2010, driven by higher metal prices and

higher numbers of end-of-life vehicles being returned under car scrappage schemes. Recycling of electronic scrap is insignificant so far. Recycling in the jewellery sector is forecast to increase by 170,000 oz to 735,000 oz in 2010. This includes old jewellery that consumers have traded in as well as unsold retail and wholesale stock. In Japan and China there are well-established networks for recycling, and we have seen consumers take advantage of rising prices this year to return old platinum jewellery.

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Platinum Outlook Platinum Outlook

• Marginal growth in supplies
• Potentially slower demand growth in Europe / North America
• Higher demand likely in China / Rest of the World region
• Positive investment demand in 2011 but lower than this year
• Jewellery demand, subject to economic conditions, may

soften in 2011 The first half of 2010 saw a recovery in the world economy, driving up industrial demand for platinum. The outlook for the remainder of 2010 and 2011 is less certain, with the possibility that sovereign debt concerns, tighter credit, and national austerity measures, especially in western economies, may slow economic growth. Autocatalyst demand for platinum is expected to continue to rise in 2011, driven by further growth in demand for diesel cars in Europe. In the third quarter of 2010, signs were emerging in Europe and North America of a slowdown in recovery in the automotive sector, however China remains strong Industrial demand is expected to continue its recovery in 2011 as higher output drives demand for platinum in process catalysts and in the electrical sector. Growth in traditional markets such as North America and Europe may be restrained, but high demand is likely to result from faster growth in China and the Rest of the World region. The outlook for the identifiable physical investment sector is we expect it to remain strong, though at a lower level than 2010 as we do not expect to see a repeat of the large investment inflows when the US ETF was launched at the start of this year. Jewellery demand for platinum may soften in 2011 if consumer spending is affected by weaker economic performance in North America and Europe. With a near-flat supply situation, and rising demand being

• ffset by recycling, the platinum market could remain in

surplus but close to balance in 2011.

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Forecast Platinum Price: what we Forecast Platinum Price: what we say for the next six months say for the next six months

$1,550 $1,900 $1,750

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400

2008 2009 2010 JM Base Prices (US$ per ounce) 1st November

The recent performance of platinum suggests that its price is being steered by speculative futures demand, ETF investment and external influences such as movements in the US Dollar and the gold price, rather than supply-demand fundamentals. Uncertainties surrounding a weaker dollar, tighter credit and the impact of national austerity measures in certain countries are likely to affect the price of platinum over the next six months. However, excepting a major sovereign debt crisis, Johnson Matthey forecasts that platinum will trade at $1,750 per ounce on average during the next six months with the price unlikely to exceed $1,900 or fall beneath $1,550 in that period.

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Palladium Palladium

Moving on to palladium

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Palladium: Key features 2010 Palladium: Key features 2010

• Palladium market forecast to be close to balance in 2010
• Supplies of palladium to remain at similar overall levels to

2009

• Gross demand forecast to increase by 15% to 8.94 million
• unces
• Autocatalyst demand to strengthen by 27% to 5.15 million
• unces
• Recycling set to rise by 29% as high metal prices

encourage recovery of autocatalyst and jewellery metal

• Net demand to increase by 12%

We forecast the palladium market will be close to balance in 2010. Supplies, including sales of metal from Russian state stocks, will remain at similar levels to last year. Autocatalyst, industrial and investment demand is expected to increase, raising our gross demand figure to 8.94 million ounces, our highest figure in a decade for palladium demand. Net demand for palladium is expected to increase to 7.10 million ounces, also our highest level for the past ten years. Automotive demand for palladium is set to increase due to recovery of the automotive sector in all regions, together with strong demand from gasoline car markets in China and the Rest of the World region. Industrial demand for palladium is forecast to rise, returning close to its 2008 level. Higher palladium prices are expected to lift recycling levels in the autocatalyst, electrical and jewellery sectors, offsetting gross demand to some extent. The rising palladium price has prompted a good deal

• f speculative investment in physically backed ETFs

recently, which has helped move the market closer to balance.

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Palladium Supply and Demand Palladium Supply and Demand

45 780 Movement in stocks 12.3 7,095 6,320 Net Demand 29.0 (1,845) (1,430) Recycling 15.4 8,940 7,750 Gross Demand 0.5 7,140 7,100 Supply % change 2010 2009 ‘000 oz

In numerical terms, we forecast that supplies will remain almost flat at 7.14 million ounces in 2010. Autocatalyst, industrial and investment demand is expected to increase, raising our gross demand figure by 15%. Net demand for palladium is expected to increase to 7.10 million ounces, some 12 per cent higher than last year despite much higher levels of recycling in 2010. With the increase in gross demand and flat supplies, the palladium market is expected to be in a very small annual surplus of 45,000 ounces this year.

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Palladium Supply to remain flat Palladium Supply to remain flat

• Supply to remain almost constant

at 7.14 million oz

• S. African supply to strengthen by

115,000 oz to 2.49 million oz

• Russian production to rise by

25,000 oz

• Sales of Russian state stocks

estimated at 1 million oz

• N. American supply down due to

strike action

1 2 3 4 5 6 7 8 2009 2010

South Africa Russia Others

million oz 7.100 7.140

Supplies of palladium are set to increase in all regions except North America. South African supplies are expected to increase by 115,000 oz to 2.49 million

• unces in 2010 as expansion of mines exploiting

palladium-rich deposits takes place. A fall in production from mines in North America of 26 per cent, to 560,000 oz, is forecast to leave total palladium production almost flat. The drop in North American production is a result of strikes, safety stoppages and more difficult geological conditions. Russian supplies are forecast to rise in 2010 through increased palladium primary production at Norilsk

• Nickel. Supplies of palladium are once again forecast

to be augmented by substantial sales from state stocks, estimated at around 1 million ounces this year.

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Gross Palladium Demand to rise by 15% Gross Palladium Demand to rise by 15%

• Gross demand to reach 8.94

million ounces

• Gross autocatalyst demand

to rise by 27%

• Gross industrial demand to grow

by 8%

• Gross jewellery demand set to

fall by 19% with weaker sales in China

• Physical investment forecast to

rise by 7% mainly from ETF growth

1 2 3 4 5 6 7 8 9 10 2009 2010

Autocatalyst Jewellery Investment Others

million oz 7.750 8.940

On the demand side, Gross demand for palladium from the global automotive sector is set to increase to 5.15 million

• unces in 2010, as vehicle production recovers in all

regions. Palladium jewellery demand is set to fall by 145,000

• z in 2010 to 630,000 oz, with much of that fall

attributable to a tailing off in demand in China. Industrial demand for palladium is expected to grow by 8 per cent in 2010, rising to 2.49 million ounces. Consumers are expected to take advantage of better economic conditions and resume purchasing electrical and consumer goods, driving up demand for palladium in the electrical and chemical sectors. Use of palladium in dental applications is set to fall slightly in 2010 as greater use of ceramic crowns and base metals in treatments impacts on demand. Net identifiable physical investment demand for palladium is set to continue its upward trend in 2010, reaching 670,000 oz. Demand for palladium in physically-backed ETFs, particularly in North America, will be responsible for this growth.

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Palladium Demand: Gross Palladium Demand: Gross Autocatalyst Autocatalyst

Changes in gross metal demand by region (2010 vs. 2009) : China up 36% Japan up 30%

• N. America up

25% RoW up 27% Europe up 23%

1 2 3 4 5 6 2009 2010

Europe Japan North America China Rest of the World

million oz 4.050 5.150

Looking in a bit more detail at palladium autocatalyst demand, purchasing of palladium by the global automotive industry is set to benefit from economic recovery in 2010 in most regions. The biggest increase in demand is forecast to be in China, the world’s largest car market. China is set to see an increase in automotive palladium demand of 36 per cent this year as production of light duty vehicles reaches almost 16 million units, driven by demand from an increasingly affluent population and supported by government incentives. Gross automotive demand for palladium in Europe, Japan and North America recovered well in the first half of 2010 as light duty vehicle production in those regions grew. 1.22 million ounces of palladium are forecast to be purchased by the European automotive sector in 2010, 765,000 oz in Japan and 1.27 million

• unces in North America

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Pgm choice in European Pgm choice in European Autocatalysts Autocatalysts

Gasoline

10 20 30 40 50 60 70 80 90 100 2008 2009 2010

P allad ium P latinu m

%

Last year’s fillip to palladium demand from national scrappage incentives, which tended to favour small gasoline passenger cars, continued to a limited extent into 2010. As many schemes have expired this year, the share of diesel vehicles in European fleets is expected to rise.

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Pgm choice in European Pgm choice in European Autocatalysts Autocatalysts

Gasoline

10 20 30 40 50 60 70 80 90 100 2008 2009 2010

P allad ium P latinu m

% 1 2 3 4 5 6 7 8 9 10 2 00 8 2 9 2 01

P a lla d iu m P la tin u m

%

Diesel

However, If we delve a little deeper into the European auto market, which has increased purchasing of palladium by 23 per cent compared with last year, we can see that much of this increase has been for palladium in diesel autocatalyst formulations. This is due to both greater use of palladium in diesel aftertreatment and an increase in diesel vehicle production relative to 2009. We continue to see more palladium being used in European autocatalysts. European gasoline catalysts now typically contain around 97 per cent palladium, while diesel formulations have around 25 per cent palladium content, on average.

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Palladium Demand: Gross Palladium Demand: Gross Jewellery Jewellery

Gross demand for jewellery forecast to contract in 2010 by 19%:

• Chinese jewellery sector to fall

by 29% as uptake of palladium remains limited outside certain regions.

• European demand set to grow
• n back of UK hallmark
• Japan and North America to

remain flat

100 200 300 400 500 600 700 800 900 2009 2010

Europe Japan North America China Rest of the World

'000 oz 775 630

In the jewellery sector, gross demand for palladium is forecast to contract by 145,000 oz to 630,000 oz in 2010. Chinese jewellery demand is forecast to fall from 560,000 oz to 400,000 oz in 2010 and is largely responsible for our lower global figure. Uptake of palladium jewellery has been limited outside certain

• regions. While palladium continues to be sold in some

areas, elsewhere it has struggled to maintain consumer interest. With retailers becoming disenchanted with sales levels, several manufacturers have stopped producing palladium jewellery in 2010, while those still active are using increased quantities

• f recycled old jewellery.

A more positive forecast is for Europe, where palladium demand in the jewellery sector is expected to continue to increase in 2010, albeit from a low

• base. As the popularity of palladium jewellery grows,

assisted by the granting of a UK hallmark in 2009, demand is forecast to increase by 20,000 oz this year. Demand for palladium jewellery in Japan (used an alloying element for platinum and white gold) and North America (sold as Pd 950 and as a white gold alloying element) is expected to remain flat.

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Palladium Demand: Industrial and Palladium Demand: Industrial and Dental Dental

Industrial, including dental, demand set to rise by 8%

• Gross electrical purchasing set

to increase as components are restocked and consumer confidence improves

• Chemical demand set to rise

with more positive economic conditions in 2010

• Global dental demand to soften

0.0 0.5 1.0 1.5 2.0 2.5 3.0 2009 2010

Chemical Dental Electrical Others

million oz 2.300 2.490

Onto industrial, including dental, demand. Overall, gross industrial and dental demand is expected to increase by 8 per cent to 2.49 million

• unces.

Consumers are expected to take advantage of better economic conditions and resume purchasing electrical goods, driving demand for palladium in electrical applications up by a forecast 135,000 oz. The use of palladium in multi-layered ceramic capacitors, ubiquitous in electrical items, is expected to be the key engine of that growth. Purchases of palladium by the dental sector are forecast to decrease slightly to 620,000 oz in 2010. Despite the high price of gold, which has encouraged substitution of gold-rich dental alloys with palladium- based alloys, palladium in dental applications is losing

• verall market share to all-ceramic and base metal

dental treatments.

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Palladium Demand: Investment Palladium Demand: Investment

• Physical palladium investment

demand forecast to reach a new high of 670,000 oz in 2010

• Strong ETF demand,

particularly in North America, seen in 2010

• 200

200 400 600 800 1,000

Europe Japan North America Rest of the World

2009 2010 '000 oz 625 670

Net identifiable physical investment demand for palladium is set to continue its upward trend in 2010, and is forecast to be at 670,000 oz by year end. Demand for palladium in physically-backed ETFs, particularly in North America, is expected to be responsible for much of this growth. Net investment flows into the US-based palladium ETF were very high in the early part of 2010, and also have been in recent weeks.

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Palladium Demand: ETF Palladium Demand: ETF

200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Cumulative Holdings (oz) 150 205 260 315 370 425 480 535 590 645 700 Price ($/oz) ETFS‐London ETFS‐Australia ZKB JB ETFS‐US Price

2007 2008 2009 2010

And to illustrate the remarkable inflows into ETF funds, cumulative holdings now stand at a little under 2 million ounces, with an increase of almost 75% over the past 12 months. There has been a good deal of investment interest in the past few weeks, in many funds but particularly in the US fund, as investors take positions on the rising

• price. This followed a period of profit taking, especially

in Europe, earlier in the year.

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Palladium Recycling Palladium Recycling

29.0 (1,845) (1,430) Total Recycling 21.4 (85) (70) Jewellery 11.4 (440) (395) Electrical 36.8 (1,320) (965) Autocatalyst % change 2010 2009 ‘000 oz

Recycling of palladium in the autocatalyst, electrical and jewellery sectors is forecast to increase to 1.85 million ounces. Recycling of palladium from spent autocatalysts is set to increase by 37 per cent in 2010, driven by higher metal prices and car scrappage schemes. Electrical recycling is also expected to increase as consumers replace electrical goods, while palladium jewellery recycling should increase marginally led by consumers and retailers returning palladium jewellery in China.

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Palladium Outlook Palladium Outlook

• Mined output expected to increase in 2011
• Sales of Russian state stocks remain uncertain but are key

to market balance

• Gross automotive demand to remain positive
• Jewellery demand could decline in China
• Physical investment demand expected to remain strong in

2011 Looking forward, supplies of palladium are expected to increase during 2011. Higher mine production is expected to continue in the regions that saw increased output in the first half of 2010. Production of palladium in North America, which was set back due to labour stoppages and mining difficulties in 2010, is expected to improve in 2011. In our view, the last of the palladium shipped into Switzerland from Russian state stocks in 2007 and 2008 was priced and sold in 2010. It is unclear whether any Russian state stock remains to be sold in 2011. The outlook for palladium demand is positive over the next twelve months as automotive demand continues to increase in key markets for gasoline vehicles in China and the Rest

• f the World region. Economic growth in these areas is

likely to support industrial demand for palladium too. The outlook for gross palladium jewellery demand in China is less positive as the number of manufacturers in this market continues to decline and interest in palladium wanes, however palladium jewellery in Europe looks positive albeit at a low level. Interest in identifiable physical palladium investments is expected to remain strong into next year, but demand growth could be lower than this year The key to the market balance is Russian stock sales. If no shipments of Russian state stocks of palladium take place in 2011, then of course the palladium market could be substantially in deficit.

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Forecast Palladium Price: what we Forecast Palladium Price: what we say for the next six months say for the next six months

$550 $710 $850

100 200 300 400 500 600 700 800 900 JM Base Prices (US$ per ounce) 1st November 2008 2009 2010

So what of the next six months, With steadily increasing automotive and industrial demand, the outlook for palladium is mainly positive. However, concerns around dollar weakness and unemployment in North America as well as sovereign debt and austerity measures in Europe could temper economic growth. China, the second biggest market for palladium in 2010, could also significantly affect the supply-demand balance if economic growth in that country were to slow. If no shipments of Russian state stocks of palladium take place in 2011, the palladium market will be in substantial deficit. With these tight supply-demand fundamentals, investors continue to see palladium as relatively

• undervalued. Continuing speculative investment

interest could move the price substantially, and Johnson Matthey forecasts that the price of palladium will average $710 per ounce in the next six months, trading as high as $850 in the period, with the price unlikely to fall below $550.

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Rhodium Rhodium

Finally, rhodium…

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Rhodium: Key features 2010 Rhodium: Key features 2010

• The rhodium market is forecast to be in a modest

surplus of 79,000 oz in 2010

• Supplies of rhodium are set to fall by 7% to 716,000 oz
• Gross demand for rhodium is expected to increase by

22% to 876,000 oz in 2010 as automotive and industrial demand recover strongly

• Recycling of rhodium is set to increase by 28% to

239,000 oz

The rhodium market is expected to tighten in 2010, moving from a surplus of 249,000 oz in 2009 to a more modest surplus of 79,000 oz this year. Supplies are expected to fall in line with lower output in South Africa and North America and no sales from stock in 2010. Gross demand should increase by 22 per cent to 876,000 ounces. Recovery of rhodium from the autocatalyst sector is set to rise in line with increased recycling of end-of-life vehicles.

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Rhodium Supply and Demand Rhodium Supply and Demand

79 241 Movement in stocks 20.4 637 529 Net Demand 27.8 (239) (187) Recycling 22.3 876 716 Gross Demand (7.0) 716 770 Supply % change 2010 2009 ‘000 oz

Demand from the autocatalyst sector is forecast to increase by 17 per cent with improved consumer confidence. Gross industrial demand is expected to increase by

• ver 50 per cent, led in particular by increased

purchasing of rhodium for glass manufacture in the early part of 2010. Recycling levels should be higher in 2010 with increased recovery of rhodium from scrapped

• autocatalysts. Although this impacts on our net

demand figure somewhat, overall net demand is set to be 20 per cent higher than in 2009.

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Rhodium Supply to fall by 7% Rhodium Supply to fall by 7%

• South African supplies to

decrease by 51,000 oz

• Russian production to remain

flat at 70,000 oz

• North American supplies to

fall by 4,000 oz

• Supplies from other regions

set to fall by 3,000 oz

100 200 300 400 500 600 700 800 900 2009 2010

South Africa Russia Others

'000 oz 770 716

On the supply side, we anticipate that production from South Africa will fall by 51,000 oz, or 8% to 612,000

• z in line with lower mined output due to supply

interruptions and safety stoppages as well as lower sales from stocks compared with 2009. Supplies from Russia are expected to remain flat at 70,000 ounces, while North American supplies are due to fall due to lower mined output because of strikes. Higher mined output from Zimbabwe is forecast to be largely offset by extremely low output from other regions.

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Gross Rhodium Demand to rise by Gross Rhodium Demand to rise by 22.3% 22.3%

• Gross autocatalyst demand

forecast to grow by 17.4% to 727,000 ounces

• Chemical demand to rise by 24%
• Glass demand to increase by 200%

to 57,000 oz

100 200 300 400 500 600 700 800 900 1,000 2009 2010

Autocatalyst Chemical Electrical Glass Other

'000 oz 716 876

Recovery of the automotive sector in 2010 is expected to increase demand for rhodium in autocatalysts by 17.4% to 727,000 ounces. The chemical industry is forecast to use 67,000

• unces of rhodium in 2010, an increase of 13,000
• unces compared with 2009. This new demand is

mainly from new oxo-alcohol manufacturing plants being constructed in Asia. Use of rhodium in glass manufacture is set to increase by 57,000 ounces in 2010 as expansion of LCD manufacturing plants in China and Japan occurred in the early part of this year. This followed a year when rhodium was returned from closing CRT glass and fibre glass manufacturing facilities.

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Rhodium Outlook Rhodium Outlook

• Rhodium market likely to remain close to balance
• Growth in automotive demand to continue in 2011

particularly in gasoline car markets

• Industrial demand could fall as few new glass facilities are

built

• Consumer confidence is key to rhodium in the chemical and

electrical sector

The rhodium market is likely to remain close to balance in 2011 as demand continues to pick up Industrial demand for rhodium could fall in 2011 as few new CRT glass facilities are built and if consumer confidence falters. Similarly reduced demand for consumer products could affect demand for rhodium in process catalysts. But any foreseeable weakness in industrial demand is likely to be outweighed by greater demand for rhodium in autocatalysts.

www.platinum.matthey.com

16 16th

th November 2010

November 2010

Thank you and we’ll now take some questions.