While the bull markets in gold and silver are well known to most investors, the platinum group metals market receives much less attention. It was only last summer that supply driven concerns took the price of platinum to an all time high of $2300 an ounce. With the help of the credit crisis, in the following months the price plunged to 5 year lows of about $760 an ounce. The fundamental supply outlook for platinum remains quite bullish. The demand destruction is not as bearish as the mainstream media would lead you to believe. Top-producing South Africa continues to face problems increasing supply. In addition, the recent plunge in both platinum and palladium has made it difficult for producers to expand production or even make a profit. In recent weeks the platinum group metals have begun to move, rallying 40% in just a few short weeks. In the months ahead we are likely to see this strong move in platinum group metals continue.
Demand
The bulk basis of demand for platinum is in catalytic converters. Auto catalyst demand has slowed due to the current depressionary economic conditions. The auto sales growth rate in China and India has slowed from about 6 percent to about 4 percent. Even the slower growth rate will make astounding differences in the amount of metal demand as it compounds over time. At the same time we are dealing with supply destruction, which will likely more than offset any slowing demand growth.
Platinum supplies exceeded demand in 2006 for the first time in seven years. The surplus of 65,000 ounces has been wiped out by a deficit of 265,000 ounces in 2007. In 2008 we had a deficit of about 400,000 ounces. This supply/demand imbalance is why we saw prices set record highs last summer. This imbalance will likely get worse as we see the supply destruction more than offset by any slowing demand. This is also one reason we will likely see record highs again in the years to come.
It is also becoming more important to consider new sources of demand for these metals in the near-future. Increased electronics use as semiconductors in PCs, cell phones, LCD TV’s, and other digital equipment is a source that could increase exponentially as countries such as China and India continue to increase the numbers of their middle-class. Fuel cells and even coinage such as the new Canadian Palladium Maple Leaf are also new sources of demand to start tracking. Lastly, ETFs have proven to be popular investment vehicles for various markets and as stored PGM stocks build up for these ETFs they will inherently reduce supply and increase demand at the same time.
Source: UNCTAD based on data from Johnson Matthey's Platinum Reports
Investors have recently increased buying in physical palladium and platinum. This is mostly due to the fact that the governments around the world are printing huge sums of funds in their efforts to bailout the financial system. As currencies around the world lose value, investors are flocking to the safety of precious metals. This trend will become more prevalent as the current disinflation moves into severe inflationary economic conditions.
If you are interested in investing in precious metals, please feel free to contact Jared for more information at 312-324-0272 or email at jared.irish@archerfinancials.com.
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