Demand set to underpin palladium, platinum

Johannesburg (Jan 22)  PLATINUM and palladium prices are forecast to rise this year, with disruptions to supply from South Africa — the leading supplier of platinum — playing a key role, while increased demand will underpin prices, according to a survey of 28 analysts by the London Bullion Market Association.

The international trade association released forecasts by analysts on Tuesday on the prices of gold, platinum, palladium and silver.

The platinum price this year will extend its premium over that of gold because as a largely industrial metal its fortunes are linked to improving economies, said Rene Hochreiter of Allan Hochreiter, the winner of the 2013 gold and silver forecasts.

"The premium may be complemented by further annihilation of supply by South African labour unions and government," he said.

Anglo American may sell its stake in Anglo American Platinum, the world’s largest platinum producer, while Glencore Xstrata was likely to sell its nearly 25% stake in Lonmin, the third-largest producer, he said. "New owners of the mines will likely see supply fall as nonprofitable shafts are closed, exacerbating the shortage of the last two years further."

Glyn Stevens of INTL Commodities, the 2013 winner for forecasting the platinum price, said platinum group metal (PGM) prices would not only be determined by the five key economic powers but also by the performance of gold.

"If the yellow metal crumbles, it will be difficult for the white metals not to follow suit — all this against a backdrop of social unrest and unions battling for power in a South Africa coming to terms with PGM prices perhaps already below costs of production."

He expects lower PGM prices this year, with platinum averaging $1,298/oz and to trade in a range of between $1,176/oz and $1,484/oz. Palladium may also "falter", he said, predicting an average of $679/oz and a range of $594/oz and $786/oz.

Credit Suisse’s Tom Kendall, the most accurate of the winners, said platinum prices and demand would take a "long road" to recovery.

"A much greater restructuring than seen to date of the South African platinum mining sector would be welcome but faces high barriers in the form of politics and an apparent focus on market share over profitability," he said. "The outlook may become brighter through the second half of the year."

The gold price was forecast to average $1,219/oz this year compared to last year’s $1,411/oz.

"Had it not been for surging demand in China, and Asia more generally, on the back of weaker gold prices, the gold market might well be digesting a sub-$1,000 price at this time," said Martin Murenbeeld of Dundee Capital Markets.

He forecast gold would average $1,250/oz and trade between $1,075/oz and $1,550/oz this year.