In a year when demand for precious metals is only getting hotter, platinum is having its worst relative performance since 2006.
The combination of uninterrupted production in South Africa and a third year of stagnating demand has limited platinum’s gains to about 20 percent this year, 24 percent below its 2008 record. Palladium has rallied 71 percent, silver rose 59 percent and gold 27 percent.
Investors are piling into precious metals as the Federal Reserve pumps $1.7 trillion into the financial system and buys more debt to keep the economic recovery from flagging. That’s not helping platinum as much as its peers as production of the metal outstrips demand for a third year, according to data from GFMS Ltd., a research company in London.
“Platinum’s been a laggard,” said Brian Hicks, who helps manage $750 million at U.S. Global Investors in San Antonio. “Platinum has industrial uses like palladium but palladium is a tighter market and platinum is not the kind of metal that garners a lot of fund flow like gold and silver in times of uncertainty.”
Hicks sold platinum and bought gold in the third quarter. “We just decided we’d rather have more assets in gold than platinum because of a concern in a slowdown in the economy,” he said in a phone interview on Nov. 5.
Precious Metal Demand
Growing speculation that economic stimulus measures will fuel inflation as economies recover from the first global recession since World War II prompted investors to increase exchange-traded product holdings in gold, silver, platinum and palladium to 16,406 metric tons this year, according to data compiled by Bloomberg. That’s 65 percent of the 25,030 tons mined around the world, leaving less for jewelers, glass producers and automakers, the biggest industrial user, according to GFMS.
Platinum for immediate delivery fell $8, or 0.5 percent, to $1,760.50 an ounce at 3:56 p.m. in London. Gold was little changed after earlier today trading at an all-time high of $1,398.60 an ounce. Silver climbed 0.3 percent to $26.8194 an ounce and palladium jumped 1.8 percent to $698.67 and earlier today advanced to $700.75, the highest price since April 2001.
Precious metals outperformed stocks and bonds this year as investors sought a store of value. The MSCI World Index of stocks has climbed 7.7 percent while U.S. government debt returned 8.8 percent, according to Bank of America Merrill Lynch’s Treasury Master Index.
An ounce of platinum bought 2.52 ounces of palladium today, the lowest ratio since January 2003. That year, palladium fell 19 percent and platinum jumped 36 percent. In April 2004, platinum fell 12 percent after Brussels-based Umicore SA, the world’s largest precious-metals recycler, said it developed a catalyst for carmakers using more palladium.
“Nothing goes straight up all the time,” Jim Rogers, the chairman of Rogers Holdings who predicted the start of the global commodities rally in 1999, said in an interview in Oxford, England, last week. Platinum “was the hottest in the world in 2008,” he said.
Platinum may start to catch up as jewelers shun more expensive metals, according to Sanford C. Bernstein Ltd. Hedge funds and other speculators boosted bets on platinum rising, pushing so-called net long positions to the highest level since at least 1993 in the week through Nov. 2, U.S. Commodity Futures Trading Commission data showed on Nov. 5.
‘Time to switch’
Platinum “jewelry demand could be supported by high gold prices,” Bernstein analysts including London-based Paul Galloway wrote in an Oct. 29 report. “Perhaps it’s time to switch.” Jewelry accounted for 41 percent of gold demand and 35 percent for platinum last year, according to GFMS.
A rally may boost the shares of Johannesburg-based Anglo Platinum Ltd. and Impala Platinum Holdings Ltd., the world’s biggest producers. Anglo dropped 8.1 percent this year. Impala has gained 3 percent. The MSCI World Materials Index of 160 commodities shares has climbed about 14 percent in 2010.
Platinum production in South Africa, which accounts for 63 percent of world output, will probably rise 1 percent this year to 4.65 million ounces, the first increase since 2006, according to GFMS. It fell 1.6 percent last year to a seven-year low as mines closed and strikes and power outages interrupted supplies.
“There had been expectations through last year that platinum production was going to be significantly hit by power constraints in South Africa,” said David Wilson, an analyst at Societe Generale SA in London and the most accurate platinum forecaster in the first quarter among 11 surveyed by Bloomberg News. “The platinum market still seems to be in a reasonably healthy surplus.”
Platinum production may exceed demand by 350,000 to 400,000 ounces this year, according to GFMS. By contrast, palladium will have a shortage of about 600,000 ounces, the first deficit since 2000, according to GFMS. Global platinum demand last year dropped to the lowest level since at least 2000, a second consecutive decline, according to GFMS.
“Platinum is a more longer-term story before it gets back to the levels of demand we’ve been accustomed to,” said Peter Ryan, a senior consultant at GFMS in London. “It could be another two or three years before we see that. If you’re looking at platinum and palladium right now, we’re probably more positive on palladium.”
Palladium is benefitting as state inventories dwindle in Russia, the largest producer, and China favors the metal for catalytic converters in gasoline-powered automobiles. Car sales in China, the world’s fastest-growing major economy, and the U.S. may rise 3 percent in the fourth quarter from the third, according to J.D. Power Automotive Forecasting in Oxford.
Palladium accounts for 90 to 95 percent of precious metal used in gasoline catalysts and platinum is used for about 75 percent in diesel devices, according to Mark Bedford, Royston, England-based director of precious-metals marketing at Johnson Matthey Plc, which produces a third of the world’s autocatalysts.
State stockpiles of palladium in Russia, the third-biggest source of the metal, may have been all but exhausted, OAO GMK Norilsk Nickel said in May.
“The fundamentals for palladium are looking brighter than they are for platinum,” said Derek Engelbrecht, marketing director at Impala Platinum, the second-largest producer of platinum. The palladium shortage may grow to 500,000 ounces in two or three years, from 200,000 ounces now, he said.