World platinum deficit to surge on production woes ATUL PRAKASH
Reuters
March 19, 2008 at 10:30 AM EDT
LONDON — The global platinum market is likely to witness a huge deficit this year and in 2009 as a power crisis in top producer South Africa hits output, while industrial demand remains strong, a Reuters survey showed.
The poll of 11 analysts and traders forecast on Wednesday that the median deficit for platinum, used in jewellery and to clean vehicle exhaust fumes, is likely to widen to 470,000 ounces by the end of 2008.
The deficit is seen at 422,500 ounces in 2009.
In 2007, total global platinum demand of 6.925 million ounces surpassed supply of 6.660 million, leaving a market deficit of 265,000 ounces. The market had a surplus of 65,000 ounces in 2006 after seven successive years of deficits.
Analysts said tight market conditions were expected to put an upward pressure on the price, which hit a record high of $2,290 (U.S.) on March 4. It was quoted at around $1,933 on Wednesday.
“Electricity supply problems in South Africa have altered the outlook for platinum dramatically,” said Walter De Wet, precious metals analyst at Standard Bank.
“The electricity deficit will be wiped out but, unfortunately, additional capacity doesn't expand in a smooth line, but rather step-wise. For now, demand will outstrip supply,” Johannesburg-based Mr. Wet said.
South Africa accounts for 80 per cent of the global output.
The electricity grid supplying Africa's biggest economy came close to collapse in January, forcing mines to shut down for five days. Since then mines have been operating below full power, driving up prices and raising fears of job losses.
The power crisis follows years of under-spending by state electricity firm Eskom. The company carried out emergency countrywide rolling black-outs this week because of a rise in demand due to cold weather and after some generators tripped.
“Driven by the continued power-induced supply disruptions in South Africa, we forecast a sizable deficit of 470,000 ounces on the platinum market in 2008,” said Michael Widmer, metals analyst at Lehman Brothers.
“Given the relative low levels of commercial stocks, it is likely that this will give strong support to prices. On the demand side, the ETFs will likely further add to marginal demand, which should help the appreciation,” Mr. Widmer said.
Platinum has surged 50 per cent this year to a record high before slipping on profit-taking. It jumped 37 per cent last year on supply worries and increased investor interest.
“It seems likely that underlying structural problems will persist for the time being and so we are looking for prices to tend higher to average $2,300 in the second quarter of this year,” said Dan Smith, analyst at Standard Chartered Bank.
“After this we expect evidence of weakening demand to start to weigh on prices which will help take prices lower by the year end, before prices resume their uptrend once more in 2009.”
Production problems in South Africa were likely to continue.
Anglo Platinum, the world's top platinum producer, said last month power problem alone would cut output by 120,000 ounces in 2008. This year's flooding at its second-largest mine would cut a further 60,000 ounces.
Impala Platinum, the world's second biggest producer, has said its output in the year to end-June would fall to just under 2 million ounces from 2.026 million in 2007.
“Any movement in the platinum price is likely to be driven by additional supply side shocks out of the South African platinum majors,” said Justin Froneman, analyst at Macquarie First South Securities.
“With additional power supply unlikely to surface, the power situation is likely to result in further output losses and this will be commodity price positive.”
On the demand side, platinum use in autocatalysts soared 135 per cent in nearly a decade to 4.24 million ounces in 2007, mainly due to stringent emission norms and growing vehicle production. Analysts say the trend is likely to continue.
Strong prices have attracted investors into exchange traded funds (ETFs), taking away significant volumes from the supply chain and tightening a market that is already squeezed.
Platinum held by ETF Securities doubled in less than two months to hit a record high of 338,120 ounces on Tuesday.
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