Investec Asset Management believes the platinum price will exceed $2,400/ounce by the end of this year as both supply and demand are inelastic.
Portfolio manager Gail Daniel said South Africa's current power problems would severely constrain growth in the production of platinum as the country accounted for 80% of the world's platinum resources and Zimbabwe for much of the balance. This implied that supply was very inelastic.
Demand for the metal was also inelastic as the use of autocatalysts in motor vehicles was legislated in various parts of the world. Diesel vehicles could only be fitted with platinum autocatalysts, while palladium autocatalysts could be applied to petrol vehicles as well.
Growing vehicle demand in China supported platinum demand, while the fact that many consumers bought platinum jewellery as an investment, implied that jewellery demand would not fall off with higher prices either.
Daniel forecast a 400,000 ounce deficit in the platinum market for this year, but said if Anglo Platinum, which still has not appointed a new CEO, could manage to increase its production it could affect the outcome.
Investec believed that 25 years was a "quite normal" period for commodity cycles of which the latest cycle kicked off around 1996. The current cycle could still see higher growth in demand until 2020, but short term cycles could still occur within the long-term trend.
The company is of the view that a strong commodity price environment will sustain strong earnings if higher costs are managed. It said the market would award companies attaining exploration success as all the "easy finds" of resources had been made already.
The successful companies will strongly outperform or be acquired.
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