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Are Higher Prices on the Way for Platinum?

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The end of the second quarter brought news of a possible OPEC-style trading bloc for the metal.

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After spending much of 2012 at a discount to the gold price, a strong start to 2013 helped platinum regain its premium. But in recent weeks, the metal has again moved lower.

Recently, platinum for July delivery tumbled more than $30 to close at $1,541.90 per ounce on April 3, while June gold ended that session at $1,553.50 per ounce on the Comex division of the New York Mercantile Exchange.

So far this year, the ETFS Physical Platinum Shares (NYSEARCA:PPLT) is down 0.1%, compared with a 7% drop for the SPDR Gold Trust ETF (NYSEARCA:GLD) and an 11% tumble for the iShares Silver Trust ETF (NYSEARCA:SLV).

In its morning platinum market report on April 4, CME Group noted that "outside market action, adverse currency market action, and generally disappointing global economic view have all been widely seen as negative factors for platinum." A lack of fresh supply side threats, the group adds, as well as "somewhat mundane" US auto sales figures are also felt to be putting pressure on the platinum market at the moment. According to Johnson Matthey, autocatalysts account for as much as 33% of platinum demand.

But could recently reported plans by South Africa and Russia -- which hold as much as 80% of the world's platinum group metals reserves -- to coordinate exports push platinum prices higher this year and beyond?

"If this proposed consortium were working successfully in the future, the expected impact would be that prices were higher in the long run compared to a situation of no cooperation," Peter Fertig, director of QCR Quantitative Commodity Research in Germany, tells Minyanville.

"We view this announcement as supportive for platinum group metal prices but also as somewhat of a long shot," Investec analyst Albert Minassian said in a note, via South Africa's Independent Online. "Ultimately only a reduction in supply can push prices up sufficiently to maintain investment in the industry, on any practical horizon," he added.

Platinum's fate, Anne-Laure Tremblay of BNP Paribas says in the London Bullion Market Association's Forecast 2013 , is ultimately tied to the fate of South African mines and their supply of the precious metal. "The severe disruptions to production subsided toward the end of 2012, but important risks persist, whether from strikes, mothballing of mines, or safety-related closures," she explains.

Labor conflicts in South Africa in particular remain one of the big unknowns for this year, says Fertig. "Their impact on supply in a year-on-year comparison is hard to predict. Labor unrests could flare up again. All in all, supply issues are likely to play as large of a role as they did 2012, with the risk probably towards lower supply from [South Africa]," he says.

Taking all of this into consideration, Fertig says platinum prices will likely rise above those of gold again this year.

"An economic recovery is viewed in the market as negative for gold, an opinion we don't share. Also a scaling-out of bond purchases by the US Federal Reserve is regarded as negative for gold. We expect that the global economy will grow stronger than last year. This should be positive for platinum, in particular relative to gold," he says.

Broadly, analysts surveyed in this year's London Bullion Market Association forecast estimate an average platinum price of $1,682 for the year versus a forecast average of $1,631 for gold.

Twitter: @helenbnichols
No positions in stocks mentioned.
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