Thanks. FYI/This Week In Platinum
Number 437 November 20, 1998
Yen Move Triggers Platinum Gains
Yen's Climb to 118 Puts Platinum Over $360
Platinum Market In Balance, Slight Deficit, Says JM
Amplats MD Warns of Impending Palladium Shortage
Fed Cuts Rates For Third Time This Fall
Japan's LDP Forms New Coalition, Boosting Yen
Strikes in Zimbabwe Rattle Business Confidence
GENERAL MARKET OVERVIEW
The Fed cut US interest rates by another .25% this week, the third such cut this fall. In
Japan, the recently announced, very large, stimulus package brought forward by the
Obuchi government this week to help revive the economy brought a guardedly positive
welcome on the Nikkei 225 stock index. Talk of coalition building by the LDP in the
Japanese Diet also helped. Oil prices sank on the calling off of an airstrike against Iraq over
the past weekend.
With the debut of the Euro slated for January first, talks of cutting interest rates in that
currency are already emerging. With concerns similar to those of the U.S. Federal Reserve
Bank, the Europeans believe a lower rate might be necessary right out of the gate.
According to The Financial Times, economists assume that the starting rate for the Euro
may be 3.3%, and they believe a cut from this rate to 3% may be necessary to continue
economic growth. Euro-economies such as Portugal and Ireland, which are already posting
heady annual GDP growth rates of over 5%, may see some inflationary pressure after the
currency harmonization, particularly if rates are lowered. Some economists, however,
question whether long term growth rates can in reality be positively affected by interest rate
cuts and expansion of the money supply. The doubt is best expressed by the joke about the
central banker who, feeling hungrier than usual, asks that his pizza be cut into 12 slices
rather than 8.
METALS MARKET OVERVIEW
Johnson Matthey released their 1998 Platinum Interim Review this week. JM estimates a
90,000 ounce supply deficit for platinum in 1998, the second year in a row where supply
has been insufficient to meet demand, even when accounting for the 400,000 ounces
recovered in the autocatalyst sector. Autocatalyst demand for platinum has slowed in 1998,
due to the nature of emissions legislation coming into effect that argues for heavier, in
certain engine designs, loadings of palladium. (See below for an expected reversal of this
trend.) Platinum jewelry demand in Japan is down modestly as well. However, US and
Chinese jewelry demand have more than made up for this decline. And in the investment
sector, demand for platinum bullion is up by 21% according to JM figures, due mainly to
sustained interest in the Platinum Eagle and an increase of purchases of large bars by
Japanese investors.
Dow Jones Newswires reports that Barry Davison, managing director of Amplats, believes
demand for palladium in the autocatalyst sector will bring the car industry up against price
and supply problems. These problems are likely to revive the auto sector's reliance on
platinum. Any price advantage that existed is already gone, said Mr. Davison in an
interview with Dow Jones Newswires. "If demand (for palladium) continues to grow in an
unfettered way ..., in three to four years demand will substantially outstrip new mine
supply," said Mr. Davison. "The situation is untenable in the long term because Russian
stocks are finite." Mr. Davison said that Amplats is calculating 2% annual demand growth
across all sectors in the near-term, although Mr. Davison declined to break the forecast
down into the main sectors. "Platinum use in autocatalysis, net, has been pretty flat in recent
years and in the short term is likely to remain flat because of platinum substitution by
palladium." However, Mr. Davison believes that in the absence of platinum demand
weakness due to a sharp global economic slowdown, "we've always said that after
depletion of the platinum stocks and therefore lower levels of sales from Russia, platinum
prices would consolidate above $400." |
