PLATINUM GROUP METALS
Platinum prices closing the gap on gold
Platinum prices are being boosted by the ongoing labour problems affecting the major producers in South Africa coupled with a rising trend for gold and the other precious metals that tend to move with it.
Posted: Friday , 14 Sep 2012
LONDON (Mineweb) -
The platinum double-whammy is already beginning to take effect as it closes the big price gap on gold, and given the ongoing labour problems in South Africa one shouldn't be too surprised if the difference narrows even further. Indeed, perhaps platinum could even return to its normal position of commanding a premium over gold should the unrest on the platinum mines continue. And there's certainly no end in sight yet.
The big dip in the platinum price, which took it down below gold in the second half of last year, where it has stayed since, has largely been due to a perceived substantial production surplus as demand has been affected by the global economic downturn given that platinum is primarily an industrial metal, although with jewellery overtones. With the South African mines hugely dominant in terms of global supply, this side of the equation is being drastically reduced with serious production disruptions at all three of the world's top producers - Anglo Platinum (Amplats), Impala Platinum (Implats) and Lonmin - and now joined by the country's fourth largest producer, Aquarius which has just announced having to cease production at its Kroondal operation.
Last year's platinum surplus was estimated at around 400,000 ounces and the loss in South African production through the ongoing labour problems, which have turned extremely nasty, has to be already approaching this figure - indeed it may even have exceeded it with Lonmin's big Marikana mine still at a standstill and the No. 1 producer, Amplats, having had to suspend operations at its massive Rustenburg operations for worker safety reasons given intimidation by other striking workers in the area, as well as by political agitators. Implats too has not been immune from disruptions - and indeed was the original seat of the labour difficulties in the area with major loss in production as a result early this year, and new pay rumblings within its workforce.
Double whammy? However illogical it may be platinum group metals are affected by the gold price and broadly if the latter rises, pgm prices do too. The U.S. Fed's latest stimulus announcement has not only thus seen a substantial jump in the gold price, but an even larger one in platinum in percentage terms with the latter closing the gap with gold to under $70 an ounce at the time of writing. Two months ago the difference in price between the two was more than $200 an ounce.
But the other key factor with regard to the strength, or otherwise, of the platinum price is demand - and estimates of global demand this year have been hugely variable. At the beginning of the year some analysts had predicted that supply would exceed demand by as much as 1 million ounces this year because of the declining global economies affecting industrial demand, while others had come up with much lower figures. Demand is far harder to predict with reasonable accuracy than supply. If disruption at the platinum mines in South Africa continues then supply could well be cut this year by half a million ounces or more and whether this is sufficient to counter the fall in industrial demand remains to be seen, but on some predictions this could indeed put the metal back into deficit - and the Fed stimulus, which should boost U.S. industrial demand, coupled with stimulus programmes elsewhere may well help the global industrial sector perform better than earlier anticipated.
Whether it does finally pan out that platinum remains in surplus this year or not, worries about supply security are having industrial users, for whom platinum may be an important raw material, rush to secure supplies against a possible shortfall and this, in particular, is what is helping drive prices upwards at the moment. Investors too will be aware of this trend and noticeably platinum ETFs are seeing inflows again and approaching their peak levels , which takes more metal off the market.
So, taking all these factors into consideration, unless there is seen to be a rapid, and lasting, settlement at the South African platinum mines, ongoing worries about supply could well see platinum prices continue to rise faster than gold. At the current rate this could even see platinum back at its normal position of a premium over the gold price within the next month or two.