Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
Gold And Silver – Elite Supernova Death Dance In PMs? - 1st Nov 14
Pretium - Canadian Golden Elephant - 31st Oct 14
What USA Today Got Wrong About the Stock Market Fear Gauge - 31st Oct 14
Election Result - Labour Wins South Yorkshire Police and Crime Commissioner - 31st Oct 14
Gold Price Falls, Stocks Record Highs as Japan Goes ‘Weimar’ - 31st Oct 14
EUR/USD - Double Bottom Or New Lows? - 31st Oct 14
More Downside Ahead for Gold and Silver - 31st Oct 14
QE Is Dead, Now You Tell Me What You Know - 31st Oct 14
Welcome to the World of Volatility - 31st Oct 14
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Free Forex Forecasts

Platinum Market Fear vs. Fundimentals

Commodities / Platinum Dec 14, 2012 - 02:20 AM GMT

By: Casey_Research

Commodities

In October of last year, we published a platinum-market overview in the Casey International Speculator and concluded by saying: "We recommend avoiding South Africa, and in this context it means staying away from platinum producers located there. If the energy situation spins out of control, miners' strikes continue, and the local trouble puts an indefinite halt to a significant portion of platinum production, some speculative opportunities may appear in the physical-metal market or platinum-backed investment tools. If we see signs of that happening, we may speculate on the results."


Although some of the events that we expected did occur this year, the "indefinite halt" has not. The nationwide wildcat strikes that ended in mid-November suggested that that scenario was possible, but the bubbling pot simmered down. We were asked by our readers to share our view on the implications of those actions on the price of platinum.

So, what is the outlook for the platinum market now, and is it time to buy?

State of the Market

Let's start with some context. According to Johnson Matthey's Platinum 2012 report, the platinum market in 2011 was in a state of surplus. Primary supply rose by 7% to a four-year high of 6.5 million ounces, while total demand grew only 2%. All segments of the platinum market expanded except investment demand, which declined 30% year-on-year.

Supply from South Africa grew by 5% in 2011, but not from actual mining. It was "due to releases of metal from in-process and refined inventories." Mine production fell by 3% because of safety stoppages and labor disruptions.

Production in South Africa was unstable throughout 2011, and Johnson Matthey forecasted that difficulties would continue in 2012, with an anticipated decrease in total supply. Well, the analysts were right: through mid-September, BMO Capital Markets estimated that 250,000 fewer ounces were produced, due to the labor disputes we've seen so much about in the news. The overall impact of the South African labor strikes on the supply-demand balance, as estimated by Johnson Matthey in its Platinum 2012 Interim Review, will amount to "at least 300,000 oz." The report predicts that the platinum market will end this year in a state of deficit, by about 400,000 ounces. Demand is projected to remain steady at about 8.1 million ounces, whereas global supply will decline.

On the surface, this might sound like a buying opportunity; but before we jump in, let's take a look at the full demand picture.

Industrial Demand

Johnson Matthey expects industrial demand to fall by 13% in 2012. BMO estimates that slow European auto sales have translated into a loss of 280,000 ounces of platinum demand through mid-September. This by itself almost offsets the forecasted 300,000-ounce drop in production caused by labor strife.

The net impact on the supply-demand relationship is, again, mixed: demand is expected to remain relatively stable. This year's supply disturbances may not necessarily cause a major, long-term imbalance due to the influence of the third part of the equation: recycling. In fact, the report explicitly states that recycling, not the South African supply issues, "will be a key factor in the platinum market balance in 2013."

Downside Risk Remains

If you accept the Casey view that global economic hardship is far from over, the downside risk for platinum is significant. Platinum and other platinum group metals (PGMs) are industrial commodities, and trends in their industrial demand can serve as a good indicator of price movements. So far, we have not seen signs of significant improvement in the global economy. We here at Casey Research do not believe that further monetary-easing efforts will cure what ails the US and global economies, so our bearish outlook for the industrial metals, including PGMs, stands.

This doesn't, however, mean that we won't see interim spikes in the platinum price, such as the recent one that followed the deaths of 47 protesting miners in South Africa. Fear gripped the market, and a short-term rally ensued. Was that reaction justified? Yes, given how much platinum production comes from South Africa and how bad the situation there is.

That behavior, though, is driven by panic, not fundamentals, and was short lived. It is very different from what we see in the gold market, where fundamentals do support long-term bullishness for an asset that serves as both money and a hedge against economic uncertainty, despite short-term, knee-jerk reactions.

In other words, until signs of global economic growth emerge or we see serious, permanent supply destruction, we view any movements in the platinum market as fleeting, not fundamental.

What Does It Mean?

Now that the large, nationwide strikes have ended, investors are trying to assess their impact on the supply-demand balance. After all, they were a primary factor driving perception of the platinum market this year. However, we doubt that the recent strikes will have a deep and lasting impact on the state of the platinum industry. Whatever lingering effects there might be will not be more powerful than the ongoing global economic weakness.

Although the platinum market is now estimated to end the year in deficit, unless there's a new and even greater supply disruption, the existing recycling output will likely adapt and fill in the 2012 supply gap rather quickly, especially if prices move up.

Investors who are more bullish on the economy than us might want to speculate on platinum now, to benefit from a pop in prices should the estimates of the global market deficit become reality. As for us, we plan to stick with our preferred monetary metals: gold and silver.

Holding physical metals is a great way to protect your wealth against inflation, which is widely regarded to be baked in the US economic cake already. To increase your wealth, however, investing in the right precious-metal companies is the way to go – and now is precisely the right time to get in, as prices are incredibly low on some sound companies. Get the details here.

© 2012 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014