Mixed messages for platinum
While the platinum price is still only a little more than half last year's peak, it has seen steady growth from its low levels early in the year.
Author: Lawrence Williams
Posted: Friday , 21 Aug 2009
LONDON -
mineweb.com
Platinum was one of the metals most drastically affected by last year's collapse in metals prices, falling from a peak of nearly $2300 an ounce (boosted by supply worries when South Africa, the world's major producer by far, was in the heart of its electricity supply problems) down to around $760 in October when it actually fell below the gold price. Since the beginning of the current year though platinum has been making fairly steady progress and while still only a little better than half its 2008 peak price has led to a good recovery in platinum stocks.
Chart from Johnson Matthey - www.platinum.matthey.com
With the auto industry accounting for a high percentage of platinum usage in catalysts, the fortunes of the price have been affected strongly by auto sales, which have remained depressed in the Western World, but have been strong in China, after an initial recovery from an oversold position.
U.S. auto sales picked up substantially with the old car scrappage system with effective subsidies on new purchases, known as the ‘cash for clunkers' programme. But, with the programme due to end at the beginning of next week, the price has been taking a knock over the past few days, although hardly a decisive one,. To an extent there has been some price support from the prospect of a strike next week at Impala Platinum, the world's second largest platinum miner, in South Africa. However, South African mining strikes historically have not been long-lived, or hugely disruptive so this is likely to have only a limited impact.
Despite falling into the precious metals category by virtue of its relative scarcity, jewellery use can only be classified as important rather than significant at around 20%, with the metal's main usage being as a truly industrial one, and thus demand is dependent very much on the strength of the global economy. Last year the autocatalyst sector accounted for 58% of demand (43% net of autocatalyst scrap recovery) and other industrial demand around 30%.
While the big price surge early last year initially stimulated new investment in the platinum mining sector, the slump has led to production cuts at major producers and the slowing down, or cancellation, of many prospective new projects which may still be uneconomic at current prices. South Africa remains the world's largest producer by far and platinum mining there is mostly relatively expensive due to very narrow deposits, primarily mined by underground methods in a relatively young geological environment, which creates its own problems in terms of high rock temperatures as the mines go deeper.
Anglo Platinum, the world's largest producer, reckoned that platinum supply in 2008 was in deficit of around 430,000 ounces on global demand of only 6.5 million ounces, and the metal is not expected to move into surplus in the current year despite the big declines in auto production. Lower prices may actually have boosted jewellery demand, while relatively new investment vehicles, like platinum ETFs, are taking additional platinum off the market.
Thus any decline from the end of the ‘cash for clunkers' programme in the U.S. (European equivalents are only now beginning to have an impact) is likely to be relatively limited on the overall supply/demand balance and many observers feel that the market may be in balance, or perhaps a small deficit, in the current year. With the depressed prices reducing pressures on substitution of platinum by cheaper metals, and reducing or delaying new project stimulation and leading to production cutbacks at some of the major miners where some operations have been seen as uneconomic, prices would seem likely to remain around current levels unless there is another sudden decline in the global economic outlook.
Assuming economic recovery, even at a slow level, platinum long term remains promising with the prospect of occasional periods of serious supply deficits given the delays and disruptions in new projects, and the cutbacks at the existing mines. While substitution may continue, albeit at a reduced level for the time being, there is also the prospect of increasing demand as environmental standards become tighter globally. |
