A long-term cost perspective on PGM prices

Current PGM demand has made many projects unfeasible. But the fall in demand could also obliterate the deficit which has plagued the market over the past few years as well as push the market into a surplus until at least 2014. We expect demand to fall by almost 8% y/y, to 7,22m oz in 2009. Thereafter, we expect a y/y increases for platinum demand. The fall in demand is driven by car sales which could decline by 7m units from levels reached in 2008 as consumers in the US and Eurozone struggle to cope with economic conditions. We expect little support from jewellery demand which we expect to remain largely unchanged. Other industrial uses are also set to decline. In 2010, we expect a recovery in demand. While y/y growth rates could rise, the amount of platinum oz actually consumed would only reach the levels seen last year in 2011. By 2014, we estimate that total demand for platinum could reach 9.125m oz.

Platinum mine supply in 2008 is estimated at 6.7m oz. While we have already seen production cuts at platinum mines in South Africa, we doubt production cuts could completely offset the fall in demand in 2009. At current price levels, we expect production cuts of between 400K and 500K oz. Working with the low end of the range and adding 190K oz of new platinum supply coming to market, total supply should be 7.51m oz in 2009.

Furthermore, in H2:10, as demand starts to pick up, operations which were shut down this year could restart (we estimate 400K), allowing for supplyto come to the market faster than any new developments. We have assumed that the cutbacks are brought to market in equal proportions in 2010 and 2011. Another source of supply is scrap. While this is not set for a massive rise until 2011, scrap and recycled platinum could reach 1.8m oz by 2014. This, we believe, could see the platinum market in a constant surplus until 2014. Should recycled metal increase as mentioned, and demand is close to our assumed numbers, the surplus would rise rapidly as we approach 2014. Above-ground stock would rise as a result. Should this happen, it should restrain prices.

We use our PGM cost model to estimate a price for platinum, palladium and rhodium that is consistent with our estimate of a surplus of 300K oz of platinum in 2009, and the surpluses in following years. In our cost model, we assume mining inflation at 10% y/y until 2014 and ZAR/ USD at $10 in real terms. While cost inflation is low compared to mining inflation in the recent past, current deflationary forces should push some mining costs lower. We further assume that new projects would, in 2008 prices, not be more expensive than current operations. This assumption is justified on the premise that any mine more expensive than current mines would not be a viable operation, given the expected surplus in the market.

There is a caveat to our approach. Above-ground stock ofplatinum could rise by another 3.2m oz by 2014, from the current estimate of about 1m oz. As a result, the market could see this as excessive, and prices might fall. Above-ground stock of 4.2m oz would translate into a 160 days of consumption (at our 2014 demand levels) and this is much higher than the current estimate of 40 days. Arguably, some of the projects listed would not come to market, or at a much smaller scale.

Indian jewellers in recessionary pain: Reuters

Jaipur jewellery manufacturers and exporters are in a recession pain. Gobal recession disease have caught the traders and the very first symptom is falling export orders.

Until last year traders dealing in gems and jewellery segment were earning huge profits. But now the situation has reversed, gem city is facing an adverse impact of recession in the global economy.

Recession has directly hit the jewellery manufacturers and exporters as there is no more order booking coming from the offshore buyers. Jeweller exporters fear the impact would be felt in the coming quarter.

"As far as global recession is concerned, people are thinking that the sales may go down. If the sales go down during the Christmas season, then the impact can be seen in the next quarter," said Jagdish Tambi, Spokesperson, Jaipur Jeweller's Association.

Majority of the jewellery is exported to the US and the there has been a sharp fall in the quantity of export due to recession in the US. Falling exports has also resulted in sizable retrenchment of workers in the jewellery industry.

"There are a lot of people who have lost jobs because export orders have been cancelled. Lesser order, lesser work, every body can feel the impact. It is not that the recession is affecting the US only," said Sudheer Kasliwal, an exporter.

What started in the US about 18 months ago as a housing mortgage crisis has slowly engulfed the whole world and India is no exception.

Titan Industries Net Profit up 88.2%

Titan Industries reported that its second quarter Net Profit has jumped up by 88.2%. The company reported its net profit increased to Rs87.14cr from Rs46.30cr in same quarter previous year.

The Company registered an increase of 52.4% in its income which was Rs1,104.85cr as compared to Rs725.11cr, during the corresponding period last year.

The groups’s core businesses-Watches and Jewellery, have grown significantly over the previous year, the company said in a statement.

The Company’s Watch sales grew by 18.8% with its income increasing from Rs255.34cr during the second quarter of last year to Rs303.45cr in second quarter of 2008.

While the Jewellery income grew by 71.4% to Rs752.18cr versus Rs438.84cr in same period previous year. The spurt in jewellery income was also due to the increase in gold price during the quarter, the company said.

“We have had a significant expansion in the network. Despite high volatility in gold prices, the Tanishq and Gold Plus showrooms continue to attract discerning customers who value our products and service offerings. We will be launching a number of new collections in watches, jewellery and eyewear categories during the coming festival season,” said MD of Titan Industries, Bhaskar Bhat.

The group’s other businesses grew by 93.7% from Rs17.62cr during the quarter in 2007 of last year to Rs34.13cr during the corresponding period this year.

The company said in a statement that the first half of the current year has shown good growth and its Net profit has jumped by 102.5%, from Rs58.94cr during last year to Rs119.36cr this year.

Watch sales have grown over 12% to Rs475.34cr and Jewellery sales have grown by 51% to Rs1,367.90cr compared to last year. Total sales are also reported to be up by 38.2% from Rs1,391.70cr during last year to Rs1,923.91cr this year.

Gem and Jewellery park in Chhattisgarh

The Indian state, Chhattisgarh plans to invest $37mn to set up a gems and jewellery park at its upcoming satellite city Naya Raipur, said state Industry Minister Rajesh Munat.

The park at Naya Raipur whose foundation stone was laid on Saturday will be India’s one of the major gems and jewellery parks.

The park will spread across 28.32 hectares of land and will house latest diamond cutting and polishing technologies. The park is likely to generate direct and indirect jobs for about 25,000 people. The project is expected to be ready by 2011 and will be maintained by Chattisgarh State Industrial Development Corporation.

Naya Raipur will replace Raipur as the state’s capital by 2011. The new city that will be sprawl across an area of about 20,000 acres will be equipped with state-of-the art physical, social and economic infrastructure.

"Road Side Romeo" collection launched by Popley's Disney Fine Jewellery

The Popley's Disney Fine Jewellery division has launched a new range of diamond jewellery called "Road Side Romeo" collection.

With the animated movie, this collection will mark The Walt Disney the company's first Indian collaboration. RoadsideRomeo, which is the animated movie will feature Saif Ali Khan and Kareena Kapoor's voice over.

Popley & sons have designed the pendants to displays the love betweenthe two characters 'Romeo' and 'Laila' in the movie. The desgined pendant is a Unisex piece of jewellery with the oval shape getting converted into a heart shape. The oval pendant has the image of Romeo while the heart shape is accompanied by Laila.

The pendant is studded with brilliant cut diamonds in 18 karat gold and is limited to only eight pieces worldwide. The collection will be available only at Popley & Sons stores.