Platinum Prices Skid on Car-Demand Worries

London (Sept 28)  Platinum prices have fallen to the lowest in almost five years, as slowing growth outside of the U.S. has aroused concerns about demand for the precious metal.

It has been a bumpy year for platinum, used in jewelry and automobile exhaust filters. A five-month-long strike in South Africa, the longest ever for the nation's platinum miners, curbed supplies earlier this year and sent prices to a near 10-month high in July. But the end of the strike, and lackluster economic performance in Europe and Japan, have brought platinum prices down 14% from their July peak of $1,517 a troy ounce.

On Friday, platinum for October delivery, the most actively traded contract, shed 0.9%, or $12.20, to end at $1,302 an ounce. That is a level not seen since Oct. 5, 2009.

At the heart of platinum's decline are worries that auto sales will fall as the European and Japanese economies slow down. About 38% of the world's platinum demand is from the automotive sector, primarily for diesel engines.

Unlike gold and silver, which investors often use as a hedge against political or economic uncertainty, "platinum is a clearer reflection of economic realities," said James Cordier, a principal at Liberty Trading. "And right now, it is not saying good things about global growth outside of the U.S."

Growth in Europe has slowed to a near standstill, forcing the European Central Bank to cut interest rates and announce new stimulus plans at its monetary policy meeting earlier this month. Japan's economy contracted in the second quarter at its fastest pace since 2009.

At the same time, platinum supplies are increasing. Mines in South Africa, the world's largest producer of the metal, are starting to ramp up production. Russia, the second-largest producer, has continued to export the metal even though other nations have imposed sanctions against the country for its role in the Ukrainian crisis.

With uncertain demand and rising supplies, some investors are moving away from platinum. The amount of platinum held by exchange-traded funds has fallen to the lowest level of the year, according to data from Capital Economics.

But other investors believe the worst of the selling may be over. Lower prices are likely to attract physical buyers of the metal from China, said Walter de Wet, an analyst at Standard Bank.

"While it is still hard to call a bottom, we think the selloff has largely run its course," Mr. de Wet said.

The gap in the price of platinum over gold narrowed Friday to $86.60 an ounce, its lowest level this year. The reduced spread could lead investors to employ a strategy where they buy platinum and sell gold, betting that platinum will outperform its counterpart, traders said. That, too, could boost platinum prices.

For now, however, the selling momentum is driving the market, analysts said.

"Based on the fundamentals, we believe prices are already oversold," said James Steel, an analyst at  HSBC,  HSBA.LN +0.57%     in a note to investors. "Despite this, we could see another round of lower levels."

Source:  WSJ