Japan and precious metals: a snapshot
As the country still reels from the devastation of a massive earthquake and tsunami, we provide a brief view of where Japan fits into the world precious metals markets
Posted: Monday , 14 Mar 2011
It feels callous writing about such an awful tragedy in terms metals markets, but sadly there is perhaps a call for a quick review of Japan's typical position in terms of normal demand levels. This piece is not designed to take a view on the prospects for longer-term increased demand in terms of reconstruction, not to try and quantify how demand may contract in the short-term as some of Japan's industries have to struggle to contain their losses or temporary shut-downs; it is aimed more at giving a snapshot of Japan's market share in different sectors.
The platinum group metals are the logical place to start, especially given Japan's long history of platinum jewellery demand. This is based partly, but not only on the concept of purity. Platinum jewellery needs to be a minimum of 85% and there is no "caratage" concept as such; this partly informs the fact that for many decades Japan was the world's largest consumer of platinum in jewellery as Japanese people have high standards and have always valued high purity (this though has been changing in the gold market through economic force of circumstances). The other reason goes back some centuries to the Shogun era, when the Emperor desired his merchants to wear while metal rather than yellow, in an effort to minimise ostentation - this was more important than the generally accepted concept of white metal looking better on the Japanese complexion than yellow metal.
Back in 1991, purchases of platinum for jewellery manufacture in Japan were 1.26 million ounces or 39 tonnnes (Johnson Matthey figures). This was some 31% of world demand for platinum in all forms and 85% of the world jewellery sector, which was 4.1M ounces or 252t.
Preliminary JM figures for 2010 put world purchases of platinum for jewellery at 2.4M ounces or 149t. This of course is now dominated by China; the Japanese figure for 2010 is just 330,000 ounces, a fall of 74% from 20 years previously. GFMS is currently estimating actual Japanese fabrication demand in the sector at a lower figure and has noted recently, but before the earthquake, that while the bridal sector remained relatively steady, falls in adornment demand were likely to continue. This is ascribed both to slow economic growth and demographic shifts in spending patterns as well as other endemic changes in the local sector.
JM figures suggest that Japanese demand for platinum in the auto sector accounted for just over half a million ounces in 2010 or 18% of the world total, but the Japanese auto market is a palladium story rather than platinum.
Johnson Matthey's estimate (which, as noted above, reflects purchases of metal for the sector as opposed to actual fabrication demand) for the overall Japanese share in the platinum market in 2010 is 1.2M ounces, or 15% of the world total. Autocatalyst and jewellery, as the two largest demand sectors, took up 75% of local purchases, with glass in third place.
Japan's position in the palladium market is slightly larger than that of platinum, reflecting its greater use in the auto and electronics sectors. JM estimates that Japan's overall demand for palladium in 2010 was 1.5M ounces or 16% of the world total.
More than 50% of this was accounted for by the auto sector, at 765,000 ounces. Japan's share of palladium demand in the world auto sector was therefore 15%.
Globally, the second largest use of palladium is the electrical and electronics sector, notably the latter. This sector took up 1.4M ounces in 2010, or 16% of world demand. In Japan the offtake was 295,000 ounces, giving it a 21% share, well ahead of Europe and the United States and second only to China.
Meanwhile Japan‘s demand for palladium in the dental sector is the world's largest at almost 47% of the total.
A fully up-to-date breakdown of silver demand by country is not yet available (GFMS will be publishing its World Silver Survey for the Silver Institute in early April). Broadly speaking, however, Japanese demand for silver is something over 2,000 tonnes, or 9% of world total. The largest end-use by far is the broad "industrial" category, which includes the auto sector, construction, medical uses and solar cells, which latter are garnering an increasing amount of popular comment. The photographic sector has been falling as heavily in Japan as it has elsewhere in the face of the onward march of digital technology; the fall in Japanese demand between 2000 and 2009 was 63%, while world usage fell by 62%. Jewellery and silverware is a minimal end-use in Japan.
In the gold market, meanwhile, Japan's share of world gold fabrication (i.e. exclusive of investment demand) is approximately 6% of the world total, with the majority of this concentrated in the electronics industry in which it has consistently been the world leader. The tonnage involved in Japan is close to 100t for a world total in the region of 250t. Jewellery demand is low, both on a gross and an outright basis, and scrap recycling has been relatively heavy in recent years, meaning that net demand has typically been well below 50% of gross demand - and more recently has been more like 20% of total. Caratage in new pieces has been falling as economic conditions have been constricting expenditure.
Gold investment bars, meanwhile, have been flowing back into the market. World Gold Council publication "Gold Demand Trends" (figures compiled by GFMS) show that with the exception of the fourth quarter of 2008, Japanese investors have been net sellers of gold bars on a quarterly basis right back to the start of 2006, since when the net release of small bars has been over 220 tonnes. This negates the net purchases of gold bars going back to the second quarter of 2002. Between the start of 1999 and Q2 21002, net purchases were almost 300t - so we may yet find that these sorry circumstances lead to more such sales.