Platinum supplies are falling to a 13-year low as mines in South Africa, the world’s biggest producer, close and automobile sales reach new highs.
Production will drop 2.7 percent to 5.68 million ounces, the least since 2000, according to Barclays Plc, which raised its 2013 shortage estimate sixfold last month after Johannesburg-based Anglo American Platinum Ltd. (AMS) said it plans to idle shafts. At the same time, demand from carmakers, the biggest consumer of the metal, will increase 0.5 percent in 2013, Barclays says. Investors are buying platinum at the fastest pace in three years.
Prices already rose about 10 percent this year, following the same advance for all of 2012, and will average $1,770 an ounce in the fourth quarter, the highest since 2011, according to the median of 15 analyst estimates compiled by Bloomberg. Costs for carmakers will increase because about 53 percent of all metal mined ends up in catalytic converters.
“Supplies are very tight and it’s a serious situation,” said Mihir Worah, who manages $110 billion in real return strategy funds at Pacific Investment Management Co., in Newport Beach, California. “Not only are there issues on the supply side, we could see surprises on the demand side as well.”
Platinum climbed to $1,700.50 an ounce in London this year. The metal would still have to gain another 35 percent to match the March 2008 record of $2,300. The Standard & Poor’s GSCI gauge of 24 commodities added 4.8 percent since the beginning of January and the MSCI All-Country World Index of equities rose 4.4 percent. Treasuries lost 0.9 percent, a Bank of America Corp. index (MXWD) shows.
Concern about supply sent platinum prices above gold in January for the first time since April. Platinum traded above gold from December 2008 through August 2011.
Global production of the metal will fall as South African output drops 3.4 percent to a 12-year low of 4.11 million ounces, Barclays estimates. There was a 394,000-ounce shortage last year as Impala Platinum Holdings Ltd. (IMP) shut its Rustenburg mine, the world’s biggest, and police killed workers striking over pay at Lonmin Plc (LMI)’s Marikana complex.
South African producers closed nine platinum-mine shafts and dismissed 3,332 workers in the second half of 2012, the Department of Mineral Resources says. Amplats, as the top producer is known, said Jan. 15 it would idle four shafts and cut 400,000 ounces of platinum output a year, about 7 percent of global production, to restore profitability. The company said last week it would postpone that decision for as many as 60 days to allow for government and union talks.
Hedge funds’ bullish bets rose 69 percent since November and the net-long position of 40,938 contracts held by Jan. 29 was the most since at least December 2009, U.S. Commodity Futures Trading Commission data show. Investors bought 4.5 tons of platinum through exchange-traded products in January, the most in three years. They own 50.9 tons through the ETPs, 0.2 percent below the Jan. 31 record, and valued at $2.78 billion, data compiled by Bloomberg show.
While economic growth in China, estimated by Johnson Matthey Plc as the biggest consuming nation, accelerated for the first time in two years in the fourth quarter, Standard & Poor’s said Jan. 31 the country has the highest risk of a downturn among 32 of the world’s largest economies.
The International Monetary Fund predicts global growth will climb to 3.5 percent this year from 3.2 percent in 2012 and forecasts a second year of contraction in the euro area.
“The problems have not disappeared as global growth is uncertain and China is still somewhat cloudy and Europe is slowing,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “It would be difficult to say where the increase in demand will come from unless we see an upsurge in growth. There are supply issues but we need demand to drive prices.”
Fewer jewelry purchases and cooling investment this year mean demand will drop 4.6 percent to the lowest since 2009, Barclays estimates.
A contraction in Europe poses a risk to consumption because the region is the biggest market for platinum in catalytic converters, according to London-based Johnson Matthey. Platinum is used with palladium and rhodium in the canisters with honeycomb-like surfaces that convert emissions into less harmful substances.
Global car sales exceeded 81 million for the first time ever in 2012 and will advance about 2.5 percent to 83 million this year, LMC Automotive Ltd., a research company in Oxford, England, said in a Jan. 28 e-mail. An average autocatalyst contains about 4 grams (0.13 ounce) of palladium, platinum or rhodium, according to Johnson Matthey, which has made one in three of the devices.
Industrial usage from glass production to electrical manufacturing will grow 3.1 percent this year, compensating for some of the decline in jewelry demand and investment, Barclays predicts. Total consumption will climb 2.8 percent next year, the biggest increase since 2010, the bank estimates.
Amplats will report profit of 1.03 billion rand ($116 million) this year, compared with a loss of 6.68 billion rand in 2012, based on the mean of four analyst estimates compiled by Bloomberg. The company posted net income of 3.59 billion rand in 2011. Its shares will fall 2.2 percent in the next 12 months after tumbling 16 percent last year, according to the average of 13 analyst forecasts compiled by Bloomberg. The stock gained 0.5 percent this year to 449.97 rand.
“The cocktail mix is very good for metals that have industrial use and platinum will be a winner especially because the fundamentals are so supportive,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $325 billion. “The economy is going to be OK. I would think demand for platinum will be on the rise.”