The Hindu Business Line : Platinum prices may decline to $700/oz

Chennai, Nov. 28 If the current crisis in the commodity market continues, platinum prices could drop to as low as $700 an ounce in the coming months as investors would prefer to cash to other investments, according to Johnson Matthey, an authority on the precious metal. On Friday, platinum was quoted at $853.

Recession effect

In fact, rising prices and a global recession have led to a 2.3 per cent decline in global jewellery demand for platinum to 6.52 million oz this year, it said.

Supply disruptions and the temporary closure of South African mine drove the price of the white metal from an opening $1,530 in January to an all-time high of $2,276 in March.

DEMAND DECLINES

Owing to the impact of financial markets, very heavy fund sales of platinum drove the market downwards in the third quarter to $1,004.

The platinum market is forecast to be in deficit by 2,40,000 oz in 2008. Demand is set to fall by 2.3 per cent to 6.52 million oz, while supply of the white metal is likely to slip 4.2 per cent to 6.28 million oz – the lowest since 2003.

Plagued by electricity supply problems, smelter outages, a lack of skilled hands and other production changes, South African mine output will drop to 4.78 million oz. Outside South Africa, Russian output of the white metal is likely to fall from 9.1 million oz to 8.55 million oz. But North American and Zimbabwean platinum supplies are forecast to grow to 3.4 million oz and 1.8 million oz respectively.

“Net global jewellery demand for platinum will decline to 1.12 million oz this year. High metal prices in the first half of 2008 negatively affected the affordability of platinum jewellery, and as importantly, increased recycling rates in Asia.

Rapid drop

The rapid drop in price from July – September allowed the industry to replenish stocks and reduced recycling volumes, stimulating a degree of recovery in demand,” said the report.

INDUSTRIAL DEMAND UP

Industrial demand is forecast to climb by 1.9 million oz to 2 million oz this year with takers from chemical sector, fibre glass and LCD manufacturing industry and petroleum refining sector.

Demand from automotive industry – a prime user of the white metal – is expected to rise by 2.1 per cent to 4.23 million oz. although North American vehicle sales have suffered a setback on the global slowdown, demand for platinum will be fuelled up by the new Euro 5 light duty vehicle emissions rules that mandates the use of diesel particulate filters in Europe and by continued growth in vehicle production in China.

ETF INVESTMENTS

“On the investment front, investment in Exchange traded Funds (ETFs) is likely to be much lower than in 2007 – at 1.3 million oz compared to 1.95 million oz – despite a first full year of trading for these funds,” Johnson Matthey’s report stated.

PALLADIUM

The palladium market will be in surplus by 3.2 million oz and the demand is forecast to rise by 3.8 per cent to 7.19 million oz. While rhodium is forecast to be in deficit by 62,000 oz on a 5.6 per cent drop to 8.1 million oz this year on plummeting vehicle sales.

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