Platinum prices have sunk to a six-month low, declining 32.3 per cent to $1,550.50 a troy ounce after reaching a record $2,290 in early March as concerns about the outlook for demand have overtaken fears about supply disruptions.

Platinum???s vital role in minimising pollutants from diesel-powered vehicles means demand from the car industry has more than doubled over the past 10 years and accounted for 60 per cent of last year???s global platinum consumption of 7.03m ounces.

However, positive sentiment towards platinum has evaporated as US car sales have slumped. In June, total sales of US cars and light trucks fell to a 15-year low of 1.18m, down 18.3 per cent year-on-year.

The decline in the popularity of sports utility vehicles and pick-up trucks, which can contain as much as eight to 10 grams of platinum in each vehicle, has been even more dramatic and this is forcing analysts to review their forecasts for platinum demand this year.

James Steel of HSBC now expects global platinum demand from carmakers to increase by just 25,000 ounces, or 0.6 per cent, to 4.25m ounces this year. This compares with his earlier forecast of a 60,000 ounce rise.

High prices means increasing amounts of platinum are being recycled from old vehicles, adding around 1m ounces to global supply this year.

As a result, HSBC expects net demand from carmakers to decline by 2.5 per cent this year, even though rising car sales in emerging markets will offset weakness in developed markets.

However, Mr Steel is sticking with his price forecast of $2,100 a troy ounce for this year and has raised his 2009 projection from $1,725 to $1,850, as he expects a significant global supply deficit to persist next year.

Ongoing electricity power problems in South Africa are expected to ensure platinum supplies remain tight.

South Africa accounts for 78 per cent of global platinum production and power cuts in February caused widespread disruption to mining operations and pushed platinum prices to record levels.

Eskom, the state utility, has been unable to guarantee that further disruption to electricity supplies can be entirely avoided during South Africa’s winter but the restoration of around 95 per cent of industrial users??? power requirements has allayed some of the markets’ worst fears about the outlook for platinum production this year.

“Power problems should ease as energy savings measures in South Africa take effect,” says Dan Smith, metals analyst at Standard Chartered who has cut his 2008 price forecast from $1,993 a troy ounce to $1,887 and has reduced his 2009 projection from $2,105 to $1,675.

Source: Financial Times.

This entry was posted on Tuesday, August 5th, 2008 at 8:27 pm.