Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Stock Market Top Valuations, at a Critical Juncture - 27th Nov 15
The Top Shopping Opportunity on Black Friday - 27th Nov 15
Economics Is About Scarcity, Property, and Relationships - 27th Nov 15
UK Immigration Crisis Hits New Extreme of 336k Net Migration, up 32% on 2014 - 27th Nov 15
Vauxhall Zafira B Fire Danger Recall - What to Do Video - 26th Nov 15
Triggers In US Dollar Collapse - 26th Nov 15
Apple Stock is a 10-Year Short - Bear Market Environment - 26th Nov 15
U.S. Federal Reserve Rate Hike - 26th Nov 15
George Osborne's War on Buy to Let Sector Trending Towards Doomsday - 26th Nov 15
Will Turkey Drag NATO into War With Russia in Syria? - 25th Nov 15
George Osborne’s Autumn Statement and Spending Review Full Text - 25th Nov 15
Will Fresh QE From ECB Boost Gold? - 25th Nov 15
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

Platinum Market Fear vs. Fundimentals

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

By: Casey_Research


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

© 2005-2015 - 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

Biggest Debt Bomb in History