| Platinum prices have fallen nearly 20 per cent since peaking at $2,290 a troy ounce in March 2008. The metal, a key component in catalytic converters, sank below $1,000 recently to a three-year low.
The slowdown in US car sales, 23 per cent lower last month compared with September 2007, has been dramatic and investors have reacted by selling holdings of platinum and palladium ETFs (exchange-traded funds), thus exacerbating the slide in platinum prices. Holdings in platinum ETFs reached a high of 484,000 ounces in July 2008, while palladium ETF holdings touched a high of 703,000 ounces in the same period.
Sydney-based financial services firm Macquarie feels that the sell-off in platinum and palladium has been overdone. According to the firm, the chances of supply disruptions remain high due to problems in South Africa's electricity market. Global platinum supplies fell 4.1 per cent to 6.55 million ounces in 2007. Sales from Russia and North America also decreased. The platinum market moved from a surplus of 355,000 ounces in 2006, back into a deficit of 480,000 ounces in 2007. European financial services firm Fortis said supply side concerns stemming from South Africa's power situation had taken a back seat amid macroeconomic concerns, but had not disappeared.
Global mining group Xstrata's bid on August 5, 2008 for South African platinum producer Lonmin for 5 billion pounds shows that strategic buyers saw equity valuations as an opportunity and reflected confidence in the long-term outlook for the platinum market. The market is abuzz with speculation that Xstrata's move on Lonmin, the world's third largest platinum producer, might trigger a bidding war. Another speculation is that gold producers Newmont of the US or Barrick of Canada could buy Lonmin and create a diversified precious metals group.
However, the outlook for platinum and palladium is "mixed", as various parts of the world are experiencing different trends in transport and vehicle sales, key factors in demand for both metals. China and India will continue to see massive growth in the auto market. Global platinum demand rose 8.6 per cent to a record 7.03 million ounces in 2007, despite record-high prices, driven by strong growth in the auto-catalyst sector. Purchases of platinum by the auto-catalyst sector jumped 8.2 per cent to a global total of 4.23 million ounces in 2007.
Global demand for palladium increased 3.5 per cent in 2007 to 6.84 million ounces as cheaper prices encouraged automakers to use the metal in their catalytic converters. Palladium purchases for use in auto-catalysts climbed 10.8 per cent to 4.45 million ounces in 2007, the highest since 2001, on growth in emerging economies, such as China, India, and Russia.
The Fortis metals monthly says the outlook for platinum is comfortable on new investment demand, higher capital costs stemming from power generators and a looming Cosatu strike in South Africa. Macquarie, however, expects a "sedate recovery" from current price levels. It targets platinum to reach $1,550 by 2009, revised downward from its earlier forecast target of $1,950 by 2009. The open interest in platinum and palladium is down sharply and central bankers are reducing interest rates to pump prime growth. Once growth returns, the prices of platinum and palladium are bound to discount this changed outlook. (The writer is the CEO of Global Capital Advisors. Financial Chronicle does not warrant the quality or accuracy of the article. It shall not be deemed a recommendation by FC for buying or selling or investment of any kind. Investments are subject to market risks. Past performance does not guarantee future success. It is advisable to seek advice from a qualified independent adivsor before investing) |