PLATINUM - Where from here ... ?
After the sell-off in gold and platinum in
2008, both precious metals rebounded strongly from the October
2008 low by about 100% with platinum leading the way until early
August 2011 when gold overtook platinum price. Since then,
platinum underperformed gold by about 17% to 26 October.
Standard Bank found out platinum may be out of flavour as the
net speculative position as a percentage of open interest in
platinum has declined from about 38% in January to about 20% to
October this year, mainly due to increase in short positions.
ETF positions have also been flat this year compared to rising
positions in the past few years. Platinum supply may also be
rising in 2011 and 2012 just when global economies are slowing
again.
Platinum price has mainly been driven by the strength in the
industrial sectors: automotive industry (about 50% of demand)
and the jewellery industry (about 20%), hence price has been
strongly linked to the economy, and the economic slowdown caused
by sovereign debt crisis in the West hit platinum harder than
gold. However a closer look at the longer-term demand and supply
picture of platinum could give a more sanguine picture.
First, auto and chemical industry catalysts continue to be
strong, underpinned by rising demand for cars in developing
markets especially China and India. First-time auto buyers and
stricter emission standards would drive demand for platinum.
However, a Platinum Investing News report cautioned against
using a blind vehicle for vehicle comparison for Chinese auto
figures compared with those in EU or the US given that China is
a small, gasoline vehicle market which uses less of platinum in
the catalytic converter. Nevertheless, as government incentives
for small vehicles have expired and policy may be easing, demand
for bigger and more cars should increase.
Another factor is the rising demand in jewellery especially
platinum in China, the biggest consumer of platinum jewellery at
about 70% of world demand, which could be further stimulated by
the cheaper platinum price versus gold. Additional factors could
support longer-term platinum prices. Johnson Matthey pointed out
that in the past few years, platinum supply has not met demand,
with 20 to 25% of demand satisfied by recycling of used
platinum. 2010 was the first year that mining output and
recycling did not meet demand. Also global demand for platinum
for use in fuel cells reached 20,000 oz in 2010. The durability,
power density and efficiency of PGM metals in fuel cells point
to an important industrial demand base for platinum.
The last factor is valuation of platinum versus gold: from 2000
to 2008, platinum ranged between 1.5 to 2.4 times of gold.
Currently, platinum trades at about 93% of gold price,
indicating some undervaluation. The CEO of Impala Platinum
recently commented that price for platinum could reach $2,000 by
the end of 2012 as he sees a very positive order book for 2012
and describes “a disconnect between the financial world and real
economy.”
Austin Kiddle
Sharps Pixley, London
www.sharpspixley.com