Hello DJ, following up on platinum, ...
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Monday, December 4, 2006
COMMODITIES CORNER
Platinum Is the New Gold
By ALLEN SYKORA
BEING WORTH YOUR WEIGHT IN GOLD would be nice, but if you had it in platinum, you'd be much wealthier.
On Nov. 21, spot platinum climbed above $1,400 an ounce for the first time ever -- more than double the price of gold -- before retreating on profit-taking. On Friday afternoon, it was trading at $1,155 to $1,160.
Strong industrial and investment demand should continue to provide solid support for the price of platinum, although analysts' views diverge on whether it will surge to new records or simply rechallenge the previous high.
There's more agreement on volatility. The big price swings that marked the white metal's recent rally are expected to continue. For instance, the most-active January futures contract at the New York Mercantile Exchange soared from a Nov. 17 low of $1,135 an ounce to a high of $1,289 on Nov. 21 (lagging the cash price) -- but by the next day it gave nearly all that back, bottoming at $1,140. On the week, January platinum futures gained 50 cents, rising to $1,154.50 an ounce.
Some blame recent volatility on market participants who had a big position in some now-expired options, while others cite unsubstantiated rumors that a platinum exchange-traded fund is about to be created that will add to demand.
any event, it's a tight market right now. -month lease rates paid by those who borrow the metal topped 100% recently, indicating just how restricted supply is. "The supply/demand fundamentals are very tight, and we know the demand is relatively inelastic," says Jim Steel, a metals analyst with HSBC. "So any severe selloffs will probably be met with physical buying."
Carlos Sanchez, metals analyst with CPM Group, says, "Supplies are rising, particularly from South Africa, but demand is outpacing supplies."
In a research report UBS analysts attribute platinum's volatility to "structural issues," starting with low physical stocks drawn down considerably in recent years. They cite a study from Johnson Matthey, a specialty-chemicals company focused on precious metals and catalysts, that estimates that the platinum market has been in a deficit for seven years.
Platinum production is only 7 million ounces annually, compared to gold's 80 million ounces, UBS notes. The over-the-counter market is further constrained by mining companies that bypass the traded market and supply consumers directly.
The global auto industry is expected to gobble up more of that output because platinum is used in many catalytic converters for cars.
In the case of diesel-powered cars, auto makers haven't had any success substituting less-expensive palladium for platinum, as they have in some other engine types.
Rising pollution-emission standards worldwide could further boost platinum demand. "With high energy prices seemingly leading toward an auto-industry move toward high-mileage diesel cars, it certainly seems as if automotive demand for platinum is going to remain extremely strong, if not grow," says Dan Vaught, an analyst at A.G. Edwards. Large-screen TVs and other electronics, including computer hard-drives, also use platinum.
Platinum jewelry demand has slipped due to rising costs. But there are few alternative sources to offset industrial demand, observes UBS. "So when it is needed -- and particularly when it is required for regulatory reasons such as in automotive [converters] -- it is bought," the firm says.
Recent dollar weakness also supports metals by making them cheaper in other currencies, thus potentially helping global demand, explains Vaught.
UBS forecasts an average 2007 platinum price of $1,225, with a low between $1,000 and $1,100 and a high of $1,500 to $1,600. CPM Group projects an average of $1,300 in the first quarter (seasonal forces tend to lift prices early in the year) and $1,132 for all of 2007.
Vaught looks for volatility to continue as long as the ETF rumors persist. Several ETF firms have stated they have no plans for a platinum product, and some analysts say regulators would frown on such a move in light of tight supply. Still, there seem to be enough other sources of demand to keep platinum's outlook as good as, well, platinum.
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ALLEN SYKORA reports for Dow Jones Newswires from Bend, Ore.
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