Platinum Supply Side Contradictions

February 16, 2013 | By | Reply More

Historically, platinum has mostly traded at a premium over gold, in fact only three times in the last twenty five years has the position been reversed. However back in July last year the metal was priced at near enough $160 under gold, the most it has ever been. This despite the ongoing labor problems in South Africa that continue to this day.

Platinum Supply Side Contradictions

South Africa is the worlds biggest producer, followed by Russia and Zimbabwe. The Zimbabwian government has banned the export of platinum ore, and this week announced the confiscation of land owned and operated by Impala Platinum Holdings, (Zimplats) , the worlds second biggest producer.

Who knows, this may only be the start! At the same time Anglo American Platinum Corp. Ltd (Amplats), the largest producer announced that it was closing down mines that will cut back production by 13%. Meanwhile Impala Platinum Holdings has taken the view that the South African labor troubles will be resolved this year and that rising prices will lead to a recovery.

Putting its money where its mouth is, the company is sinking three new shafts at its Rustenburg mine. To hammer home the gamble that Impala is taking, its first half year income fell 78% and its year end debt rose to $334 million.

Platinum Supply takes a Hard Knock

Platinum production in South Africa has slumped by over 20% year on year while clearly any investment by producers in Zimbabwe is unlikely in view of its government intentions. Russia keeps a tight hold on its platinum stocks.

Platinum Prices Up This Year

So the prospect of dwindling supplies and rising costs of production has seen the price rise by 11% so far this year although, as if in sympathy with gold, the April futures price fell on Friday by over 1%.

Demand Likely to Increase

How will the supply situation affect demand?

  • US and China the two largest automotive and truck markets are currently looking buoyant with increasing sales all round.
  • Catalytic converters in the auto industry take up 33% of the total platinum above ground, a further 30% in other industrial use, 29% in jewelry and 8% in investment vehicles such as coins and ingots according top Johnson Matthey, the principal precious metal refiner.
  • Pollution problems in China are being addressed by the government so legislation to meet lower emission standards can be expected, resulting in even greater platinum demand.
Downside Factors

On the downside, the latest quarterly figures from the Eurozone indicate that the much trumpeted economic recovery is not only stagnant but getting worse and that will have a negative affect on overall platinum demand.

Also it should not be overlooked that the largest use of platinum is as a catalyst which simply means that the metal remains unchanged throughout its life in catalytic converter exhaust systems and therefore can be recycled ad infinitum.

Platinum and Gold Share the Same Cycle

More often than not, platinum, together with other PGMs follow gold’s cycle, which accounts for some of Fridays’ fall. There is little logic in this pattern as platinum is very much rarer than gold, has never been recognised to anywhere to the same extent as gold or silver as a preserver of wealth or hedge against inflation and has a more extensive industrial uses than gold.

Opinions Versus Research

We’ve outlined those facts about platinum that we think are important. Whether this is a good time to be investing in the metal is a difficult question and depends to a significant extent on whether a potential investor believes that the economic world is on the road to recovery and that supply will continue to be in jeopardy due to the labor and political difficulties in South Africa and Zimbabwe.

If you consider that those two factors are in place and likely to continue then platinum is a buy. As far as we are concerned we are reluctant to commit ourselves to a position long or short until we have done more due diligence and the US economic situation becomes clearer. If we decide that platinum is a goer, we will start by putting our money with the Physical Platinum Shares ETF (PPLT). As its name suggests it holds the physical metal in a similar structure to SPDR Gold Trust (GLD.

Finally can we be excused for remarking that the evidence that the US economy is over the worst and looking buoyant seems to be a tissue of half truths, omissions, fabrications and damned statistics!

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Category: Platinum Group Metals

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