Platinum Opportunities On The Way?

January 9, 2014 | By | Reply More

Although no longer the largest gold producer in the world, South Africa still retains its status as the foremost producer of platinum. As the political and labor problems in South Africa still remain unresolved it is likely that production of platinum will remain on course for a third year of declining production. Because of the uncertainty surrounding these issues significant investment in 2013 by the mining companies was not forthcoming and it is unlikely that 2014 will see any improvement.

Platinum Demand Outstrips Supply

Adding to the lack of investment are mine and shaft closures, diminishing ore grades,  older mines leading to ever deeper shafts and a possibility that the South African Government will impose a tariff on production. Russia, North and South America (Columbia) and Zimbabwe are other sources of the metal but it is far from likely that they can make up for the shortfall from South Africa in the foreseeable future. In 2013 demand outstripped supply, demand will grow in 2014 as economies recover from recession while supplies continue to fall.

Chinese Grateful

In a true market environment, when demand is greater than supply, prices will rise until equilibrium is reached. But the precious metals market no longer reacts to the obvious fundamental of supply and demand. Take gold for instance, China, Asia and the emerging economies are snapping up physical gold and silver at a very healthy rate while western speculators and banks in the futures market, wholly paper transactions, are selling contracts in a ratio of 3 to 1 driving prices down circa 30% since 2011. The Chinese must be very grateful!

Can Platinum Break Away From Gold?

So here we have the problem! Platinum and its group of metals have mirrored gold in much the same way as silver. If it and the other PGMs and can break the mould then we should see their prices rise significantly irrespective of the performance of gold. The law of supply and demand should reassert itself and a healthy market ensue.

South African Crisis Good For Platinum

In December2008 the price of platinum was $850 an oz, rising to $1800 an oz in 2011 and falling back to $1400 an oz the first week of 2014. The average throughout this period was$1506 an oz. Whilst for the greater part of the period it rose and fell in tandem with gold, there now seem to be a faint possibility that it may begin to break away from that cycle, although as we write, gold is down 0.72% and platinum down 0.50%. It may take a really large crisis in the South African mining industry for platinum to stand on its own two feet!

Beware Recycling

Platinum’s principal application is in the automotive industry as a catalyst in vehicle exhausts to control emissions and this accounts for near 50% of sales, followed by jewelry at around 30% with  the remainder used in other industrial applications and investment.

China will have a significant bearing on platinum demand as it ramps up its vehicle manufacturing industry and imposes stricter emission controls to counteract the smog that envelopes many of its major cities. When considering platinum as a lock away investment bear in mind that half its annual output is as a recyclable catalyst, an increasing proportion of which will re-enter the market place on a frequent basis.

A Sort Term Speculative Opportunity

Our conclusion is to play this market on a short term basis, keeping a sharp watch on developments  in South Africa, particularly the strike prone labor market, the political situation now that Mandela  is no longer a voice for moderation, the dollar/rand exchange rate and, of course, the behaviour of the gold price.

Could be some rich speculative pickings in the near future but for the long haul question marks remain.

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Category: Platinum Group Metals

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