Platinum price spikes as strike drags on

The longest South African miners’ strike since January has caused the price of platinum to fluctuate wildly. In recent times, the platinum price spiked as much as $1,400 per ounce and is expected to go as high as $1,700 per ounce in second half of the year, according to UK-based metals consultancy.

Platinum production losses through the South African strikes are estimated at more than 600,000 ounces, according to a report from GFMS, a unit of Thomson Reuters Corp (TRI). Even if a labor agreement is reached imminently, further losses will accrue as a result of absenteeism, re-training and ramp-ups, said GFMS.

“These projected total platinum losses are equivalent to seven weeks-worth of 2013 world demand, and will help to send platinum back into a deficit this year after a surplus in 2013,” analysts said in the report. This year’s survey sees the platinum market last year in a surplus of 490,000 ounces. South Africa accounts for more than 70% of annual global platinum production.

The consultancy forecasts an average platinum price of $1,457 an ounce this year, a 2% decline compared with the 2013 average. Spot platinum currently trades around the $1,400 per ounce level. The predicted associated palladium losses–around 450,000 ounces–are equivalent to two weeks’ global demand at 2013 rates and would help to keep palladium in a deficit in 2014 for the eighth consecutive year, according to GFMS.

“Palladium is believed to have bottomed out already in 2014 and robust demand is expected to propel the price towards a test of $930 per ounce before year-end,” analysts said. The consultancy expects the global palladium market to remain in a deficit in 2014 and to be one of the strongest performers in the metals sector. It forecasts a 2014 average palladium price of $793 per ounce, a gain of 9% over the 2013 average of $725. The metal currently trades around the $800 level.

Platinum and palladium are used in catalytic converters that scrub fumes from car emissions. By April 23, the ETFs had accumulated holdings in excess of 410,000 ounces. Meanwhile, GFMS doesn’t expect more shipments of palladium stock from Russia this year, further emphasizing the market deficit. Russia is the world’s largest provider of the metal, producing about 40% of the global supply.

“The events between Russia and Ukraine in early 2014 have provided additional concerns around supply, in that there is a chance that western diplomatic measures could see a broader emplacement of sanctions on Russia that may threaten the continuity of export of platinum and palladium,” it said. “The base case expectation is that this will not happen, but it is recognized that these events will continue to provide a risk premium, especially to palladium.”

Courtesy: Dow Jones