Platinum To Hit $2,500/Oz On 08 Market Deficit - Indus
May 19, 2008
(Updating to add comment from analyst)
By Melanie Burton
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- The price of platinum for cash delivery is expected to hit $2,500 a troy ounce this year as supply falls short of roaring demand from the autocatalyst, electronic and investment sectors, a leading industry group said Monday.
Johnson Matthey PLC (JMPLY) predicts a "substantial" market deficit in 2008 as forced mine closures in South Africa crimp supply.
Demand is seen leaping ahead this year, even if global growth falls back and a strengthening dollar dims industrial demand, London-headquartered Johnson Matthey said.
Against this backdrop, the price of platinum for cash delivery is seen in a volatile $1,775-$2,000/ounce range.
Potential strikes, power cuts, flooding and a series of safety-related closures in South Africa have already made a dent in 2008 platinum production.
The nation accounted for 76% of the world's new platinum supply last year, according to the group's highly anticipated annual report.
But the shock of severe power shortages in South Africa on mine supply has mostly been felt.
Johnson Matthey sees a shortfall of under 200,000 ounces in platinum supply this year if power supply holds up through the South African winter and is sufficient to cover new and expanding operations.
If the South African production shortfall is no worse than 200,000 ounces under 2007 production of 6.55 million ounces, this suggests the global supply and demand deficit is going to be big - at 600,000 ounces or larger, depending on demand, said JP Morgan analyst Michael Jansen.
This compares with a deficit of 480,000 ounces in 2007.
The 2008 deficit has scope to widen, however, as JM's figure doesn't include the temporary closure of Anglo Platinum Ltd.'s (AMS.JO) Amandelbult mine due to flooding earlier this year and amid the slow ramp-up of production at Lonmin PLC's (LMI.LN) new mechanized shafts and a shortage of skilled staff, it said. Political uncertainty in Zimbabwe could damage output there too.
On the demand side, tightening emissions legislation in Europe and the U.S. will be a key factor pushing auto industry demand, which accounted for more than two-thirds of demand last year. Platinum is used in the emissions cleansing devises, with autocatalysts for diesel vehicles requiring about three times the amount needed for gasoline-fueled vehicles. Market share of light-duty diesel-powered vehicles in Europe will continue to grow, predicts Johnson Matthey, which is a leading manufacturer of autocatalysts.
The trend to substitute it with the cheaper metal palladium in gasoline engines and some diesel engines continues as research is directed at finding cheaper alternatives to platinum. But despite a plethora of technological breakthroughs over the last year, including autocatalysts using gold and silver, platinum's unique chemical properties should insulate it from major substitution threats in the near term.
Jewelry buyers have paid little heed to rising prices, and the overall picture for jewelry demand this year "may not be significantly worse" than 2007, Johnson Matthey said. Jewelry demand fell only marginally to 1.59 million ounces last year, some 22% of the total.
Meanwhile, demand from the nascent exchange-traded fund industry is also expected to grow. When prices rise, more metal is bought by investors, although interest depends to some extent on global economic conditions. While poor performance by equities has encouraged investors into commodities this year, a sustained fall across global exchanges would drive precious metals prices lower, Johnson Matthey said.
The launch this month of a futures product to be traded on the NYSE could add to platinum demand if the backer, Swiss bank UBS AG (UBS), has to hedge its exposure by buying from the physical market, Johnson Matthey told Dow Jones Newswires.
Elsewhere, demand for platinum in computer hard disks and other industrial applications is unlikely to be hit if prices rise further, as relatively few substitutes are available, Johnson Matthey said.
In 2009, there is the potential for South African supplies to return to stronger growth while supply from secondary sources such as jewelry and autocatalyst recycling is also predicted to rise.
-By Melanie Burton, Dow Jones Newswires; +44 (0)20 7842 9412; melanie.burton@dowjones.com
(END) Dow Jones Newswires
05-19-08 1337ET
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