This WEEK IN PLATINUM (not yet posted on www.platinumguild.org):
Number 448 February 19, 1999
Platinum Lease Rates Stir Supply Concerns, Price
Runup
METALS MARKET OVERVIEW
This week has been the most exciting week for the platinum market all year, with platinum
reaching $381 at one point during Thursday's trading. Platinum prices held and even gained
over $2 more early Friday morning. With activity beginning in Asia on Thursday, the run
started with concerns about lease rates climbing to nearly 5% and rumors of movements of
platinum out of warehouses, forcing prices higher. There was word of new buying by
hedge funds who may have been looking to join the excitement, and also word of buying
by industrial consumers who may be approaching this season with caution. Although the
Russian lower house has passed the budget, wherein is typically included language
authorizing the export of precious metals, there is still no firm word on when Russian
shipments may begin. Concerns over Russia and cuts in nickel production are considered
to be offering platinum and palladium fundamental support despite the deterioration of the
yen dollar rate.
The United States Defense Logistics Agency (DLA) has offered proposals this week for
accelerated disposals of its approximately 430,000 ounces of platinum held in strategic
stockpile. The proposed sales, at 100,000 ounces of platinum and 150,000 ounces of
palladium for the year 1999, have yet to be approved and are still open for discussion and
committee intervention. The existing sales plan had originally scheduled a slowly increasing
annual disposal, from 10,000 ounces this year to the eventual moving to market of the
entire stockpile by the second decade of the new millenium. The new, accelerated, sales
are most likely a response to the budget pressures that the Defense Department is currently
facing. The DLA has a wide portfolio of commodities that it could put to market to raise
funds, so the actual amounts of platinum and palladium to be sold are likely to be lower
than the amounts proposed. Assuming that platinum supply for 1999 is roughly 5 million
ounces troy, the sale of an additional 100,000 would equal approximately 2% of additional
supply for the year. Consequently, platinum prices barely registered on the day the DLA
proposals came over the wire, closing down merely $1.8 dollars.
It is worthwhile at this point to discuss some of the history of the DLA's stockpile of
platinum. The DLA platinum stockpile was first accumulated during the World War II era.
Platinum, essential for the refining of gasoline, manufacture of explosives, and the
manufacture of steel and of glass, was considered too vital a commodity to be dependent
upon foreign imports in times of war. This was demonstrated in WWI, when shipments of
platinum from South Africa to the United States were first threatened by the Kaiser's
U-Boats. From the time platinum was declared a "strategic metal", its use in jewelry
dropped near to nothing, ending the art deco era of platinum jewelry in the 1920s and
1930s. It was not until the 1970s and 1980s that demand for platinum jewelry began to
reawaken again in the United States.
Although the US now has a small, reliable supply of domestically produced platinum, the
US is still dependent upon foreign sources for slightly over 90% of its annual needs,
counting domestic recovery. US platinum output plus the DLA inventory in total would not
last 6 months at current levels of platinum demand. The importance of the metal not only to
our economy but to our defense interests remains strong, and the general availability of
ready above-ground supplies looks likely to only decrease in the years to come.
The Environmental Protection Agency may report as early as next week stricter standards
for automobile and gasoline pollution for sports utility vehicles (SUVs) -- the most popular
selling class of vehicle today. The new standards will have a dramatic impact on the Clean
Air Act as well as the auto industry. The implications are that SUVs will no longer enjoy
their status as quasi-commercial vehicles, which allowed for a relaxed set of emission
standards, and must now reduce the amount of pollution and sulfur they create to be on par
with other passenger vehicles. Some consider this one of the more significant steps towards
auto emissions regulations since the introduction of catalytic converters in 1975. The auto
industry estimates that the cost per vehicle of the new regulation will be approximately
$200 per vehicle. Generally speaking, increased stringency of emissions requirements has
resulted in higher loading of platinum group metals used for the catalytic converters. The
EPA is looking at a ten year lead time for the new rules to take effect.
Interesting Platinum Fact: Have you ever wondered what keeps a satellite going when its
solar arrays are hidden by the earth's shadow? Onboard batteries, typically made of nickel
hydroxide cathodes with a platinum catalyst anode, keep the satellites working even when
blocked from the sun's rays. Batteries are one of the heaviest subsystems in a satellite, but
they are important in storing the electricity generated while "the sun is shining." This is yet
another one of the many ways in which platinum helps to make our high technology
civilization possible.
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