| Precious Metal Products Division’s revenue fell by 14% to £2,544 million. Precious metal prices were significantly lower than the same period last year when they were at record highs, particularly in the first quarter. Sales excluding the value of precious metals decreased by 13% to £206 million, with reductions across all of the division’s businesses. Operating profit fell by 36% to £49.2 million. Translated at constant exchange rates, sales excluding precious metals decreased by 22% and operating profit was 41% lower than last year.
The Platinum Marketing and Distribution business was adversely impacted by market conditions. Whilst volumes remained in line with last year, sales and profits were significantly down due to the lower precious metal prices and reduced volatility, particularly compared with the second quarter of last year.
Demand for platinum is expected to fall by 4% in the calendar year 2009, with automotive demand falling by around one third to the lowest level since 2000. The global downturn in automotive demand has been broadly matched in industrial markets due to reduced inventories and soft consumer demand in many sectors. However, lower platinum prices have reinvigorated jewellery demand, up nearly 80% in the year. The Chinese market has boomed following de-stocking in 2008, with consistently strong consumer demand seen in response to lower retail prices. The investment market has also been buoyant, with Exchange Traded Funds continuing to attract investors seeking to diversify their portfolios.
Platinum supplies are expected to rise globally by 2% in 2009, although production of refined metal will fall in South Africa as output is cut in response to low platinum prices. The outlook for South African production remains challenging as increasing costs in local currency limit the benefit of rising dollar platinum prices.
The platinum market is forecast to be in modest surplus in 2009 although speculative demand has kept the platinum price on a rising trend from the low point in October 2008, at the height of the global financial crisis. The average platinum price in the first half of Johnson Matthey’s financial year was $1,208/oz, down 33% compared to the same period last year.
The palladium market is expected to remain in fundamental surplus in 2009. Net demand is forecast to be down by 4%, although autocatalyst demand will fall less than for platinum as scrappage schemes introduced in many countries have favoured sales of small engined, gasoline powered vehicles which use palladium based technology. The booming automobile market in China is also supportive of palladium demand due to the dominance of gasoline engines. Industrial demand is expected to fall, with soft consumer demand leading to a downturn in the use of palladium in electronic applications. Although total demand will exceed mine supplies, significant sales of metal from Russian state stocks will keep the market in surplus. The average price for the first half of Johnson Matthey’s financial year was $255/oz, down 35% compared to the same period last year.
The rhodium market has been relatively calm in comparison to 2008 when a record price in excess of $10,000/oz was recorded in the first half of the year before collapsing to less than $1,000/oz by November. With demand subdued due to falling car production, rhodium is expected to be in surplus in 2009. The price is nonetheless trending modestly higher in what is a small and often volatile market. The average price in the first half was $1,509/oz, substantially lower than an average in excess of $8,000/oz recorded in the same period last year.
The division’s manufacturing businesses also saw a decline in revenue as industrial demand reduced. Sales to the agrochemical sector, for products used in the production of nitric acid for fertilisers, and to the medical components industry remained in line with last year. Sales to other industrial customers, which held up well in the second half of last year, were impacted by reduced demand. Colour Technologies’ sales were also below last year, in line with the reduction in automotive demand. Overall, operating profit for the division’s manufacturing businesses was significantly lower than in the first half of last year.
The performance of our Pgm Refining and Recycling business is affected by metal prices. When metal prices are high, intakes and refining margins increase as customers seek to recover metal that is in demand; the reverse is true when metal prices fall. In the first half of this year, our Pgm Refining and Recycling business suffered from the impact of lower pgm prices as intakes, revenue and consequently operating profit reduced accordingly. This was in contrast to the same period last year when intakes of secondary materials such as autocatalyst scrap were very high. On the other hand, the division’s gold refineries based in North America, bolstered by high gold prices, achieved very good growth in revenue. We continue to look at ways to increase the efficiency of these businesses in order to make their performance more robust in the face of changes in metal prices.
Our Catalysts and Chemicals business manufactures precious and base metal catalysts and chemicals for a wide range of customers across many industries including automotive, chemical and pharmaceutical. During the first half, the business saw a reduction of activity across most industries with sales excluding the value of precious metals and operating profit both substantially below the same period last year. |
