Platinum seen at more than $1,700/oz this year

May 5, 2014

Johannesburg-S.A. (May 5)  Platinum trading at about $1,430/oz — should move above $1,700/oz by the end of the year, says the Thomson Reuters GFMS Platinum and Palladium 2014 Report, released on Friday.

The report says: "This projection is based on the premise that declining mine supply will be more substantial than gains on the demand side, which is estimated to push the market into a 0.7-million-ounce deficit this year." It adds: "The estimated 20% decline in South African production is forecast to significantly reduce global platinum supply, which is projected to reach its lowest level in 14 years.

"Demand for platinum, on the other hand, is forecast to increase and reach its highest level in six years, mainly resulting from a global economic recovery.

"When putting this in perspective to our estimated 3.9-million ounces of above-ground stock, at current levels demand would be covered for just over six months. This is the lowest level in four years and is likely to worsen in the next few years.

"These factors, we believe, could spur fresh investment buying, which is already reflected in the rise of platinum-backed ETF (exchange traded fund) holdings and would support sustaining platinum’s premium over gold throughout the rest of the year — and beyond."

The report estimates there was a "substantial" surplus of platinum amounting to 490,000 ounces during 2013, which "was obviously a key factor in the weakness of the platinum price last year as it dropped to the lowest annual average since 2009".

GFMS estimates total platinum supply at 7.3-million ounces for last year against total demand of 6.8-million ounces.

The report says: "Crucial to the return to surplus was a substantial contraction in demand for the metal, to the lowest level since the wake of the global financial crisis."

On the strike on South African platinum mines, GFMS estimates that, up to late April, more than 600,000 ounces of platinum production has been lost.

It says: "Even if an agreement is reached imminently, further losses will accrue as a result of absenteeism, underground ‘safe start’ preparation, retraining and ramp-ups, which we expect to exceed 0.3-million ounces."

Regarding the situation between Russia and Ukraine, GFMS said this had created additional concerns about 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.

"Although our base case expectation is that such measures will not occur, we fully recognise that these events will continue to provide a risk premium, especially to palladium."

South Africa and Russia level-pegged as the world’s two largest suppliers of palladium last year, at 2.34-million ounces and 2.58-million ounces respectively.

The report says the palladium market had a deficit of a million ounces last year, expected to increase to 1.3-million this year.

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