Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Derivatives Crisis Of Banks…Worldwide - 3rd May 16
Bank of North Dakota Soars Despite Oil Bust: A Blueprint for California? - 3rd May 16
Stock Market Technical Analysis - 3rd May 16
Central Banks Need a Higher Gold Price : Hello GATA - 3rd May 16
A Currency War Battle That Europe and Japan Can’t Afford To Lose - 3rd May 16
When the Truth is Found to be Lies, Confidence in Currency Dies - 2nd May 16
How Brexit Could Help All of Europe - 2nd May 16
US House Prices Outpacing Official Inflation Rate, Household Income - 2nd May 16
USD Still Declining... - 2nd May 16
Gold & Silver Rally Huge as Central Bankers & Analysts Flub - 2nd May 16
Stock Market Bounce Day - 2nd May 16
Stock Market Uncertainty Following Two-Month Long Rally - Will It Continue? - 2nd May 16
Stock Market Correction Underway "Upside Objective Reached" - 2nd May 16
USD, Yen and an ‘Inflation Trade’ Update - 2nd May 16
Gold Commitments of Traders and More - 1st May 16
The Magic of Gold Ratio Charts - 1st May 16
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

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

© 2005-2016 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

Catching a Falling Financial Knife