pt to remain stronger for longer

Platinum analysts expect the platinum price to remain stronger and for a longer period after the price rose to $1,323 an ounce in the morning "fixing" in London from $1,317. Variables that could impact the price and performance of platinum producers are demand from Exchange Traded Funds (ETFs) and the volatile rhodium price, said analysts.

Heye Daun, a fund manager with Old Mutual Investment Group (Omigsa) told Mineweb he believed the platinum price would remain at higher levels for approximately three years before it reverted back to long term average levels.

He said the planned launches of platinum ETFs were interesting developments as there was a good chance that demand would be significant, as in the case of gold ETFs, and would grow beyond the combined estimated 140 000 ounces of the two funds that had been announced.

The price of rhodium has a major impact on the value of the platinum basket (PGM) price as platinum producers now attribute approximately 30% of total revenue to rhodium.

The rhodium price is volatile and soared from about $500 to $6400 per ounce over the last three years, but few experts believe the price will remain at current levels.

"The rhodium market is the least understood among the four main platinum group metals - platinum, palladium rhodium and gold. The large metal producers deal directly with their consumers, the major autocatalyst producers, and there is very little information on that market.

"Rhodium is volatile, the market is currently tight and prices are high, but a turn could be very significant for platinum producers' earnings, which could quite easily drop by 10 to 15% in a relatively short period of time."

Most analysts expect a return to long-term rhodium prices, but it is difficult to say when this will take place. Most producer forecasts on rhodium had been completely wrong in the past, added Daun.

He said expectations of the platinum price could be based on market supply and demand fundamentals.

On the supply side, the platinum industry was highly concentrated with about 70% of global production coming from a few large producers in South Africa.

On the demand side, there is an increased focus on global emissions reduction from the United States and developing markets.

Sanlam Investment Management analyst Stephen Roelofse told Mineweb the organisation's initial forecast for platinum was to peak in the region of $1370, $1375/ounce in the first quarter of next year but current prices were not far from this mark and there were a number of factors working in the metal's favour.

Roelofse said he expected the price to remain "firm" until the first quarter of 2008. Any correction in the price would be short-lived.

The ETFs were a great driver of the buoyant price and any disruptions in the South African platinum mining industry would boost the price further.

Roelofse elaborated that the South African mining industry was bracing itself for tough wage negotiations this year and if any strike action ensued one would probably see its effect towards the middle of the year.

Another trend to watch closely is any recovery in demand from the Chinese jewellery market that is still declining at the moment.

The strong platinum price has caused a big swing from platinum to palladium in this market, but a recovery could push platinum prices higher. This was an unlikely scenario as the Chinese are generally resistant to higher prices.

The gold price played its traditional part in the performance of platinum that generally performs stronger when gold moves up. Gold traded at $690 per ounce around midday.

Roelofse said it was very difficult for commodity analysts to forecast commodity prices in an extended commodity cycle and most would not forecast the price to breach the current spot prices.

New platinum production from South Africa was already coming into the equation and he could see supply rising 6% annually over the next three years followed by annual growth of 4 to 5% for another three years.