Johannesburg - The platinum price is unlikely to advance much from its two-year lows given the parlous state of the global economy that governments of the leading 20 richest nations are endeavouring to address.
The platinum price, which appears to be taking direction from the gold price, is unlikely to draw much comfort from developments at the G20 summit and will remain muted until the car industry shows signs of recovery, analysts say.
Platinum has two uses. It is used to make catalysts in exhaust systems of motor vehicles as well as in the jewellery business.
Demand from the automotive sector makes up roughly half the demand for the white metal. Matthew Turner, an analyst at London-based metals consultancy VM Group, says the global car industry slowdown has shown signs of bottoming out.
�The G20 will not have a strong impact on the platinum price. Platinum reacts to trends, so one week it will strengthen and the next it will weaken depending on market sentiment,� he said.
A JP Morgan platinum sector update published in March said the global financial meltdown was the most significant negative economic event since the Great Depression in the 1930s.
"We seriously doubt that the governments of the world's most powerful nations would be taking the desperate measures they are if the informed perception was that 'this is only a flesh wound'," JP Morgan said.
"We do not expect the situation to turn miraculously, and we will be surprised if the 'hard' demand drivers for platinum are transformed soon," the report said.
The platinum price fell from a high of $2 290/oz in March 2008 to as low as $732 in October, sparking fears about most, if not all, mining firms of the metal were producing at a loss. Since then, it has been recovering steadily and is currently sitting at around $1 140.
"Platinum is a schizophrenic metal and in bad times, history shows that fundamentals can move to the background as the white metal moves in lock-step with gold," the JP Morgan report said.
Gold has performed better than most other metals in the commodity price retreat that started last year. It reached an all-time high of $1 030 in March 2008. Apart from a brief dip in the last quarter of 2008, the gold price has remained relatively strong, currently trading at $911/oz.
Gold is seen as a refuge for those not wanting to invest money in volatile equity markets and the weak dollar.
JP Morgan said the fundamentals for platinum will remain weak, but the worst is over for platinum. It has improved its average platinum price outlook for 2009 to $981 from its forecast of $875 in January. The outlook for 2010 is for platinum to average $1 138.
Turner said the platinum price is not in a bad place at the moment. "A few years ago, the market was asking itself whether the price would go above $1 000. But it won't go back up to $2 000 any time soon," he said.
David Davis of Credit Suisse Standard Securities has a bearish outlook on the short-term prospects for platinum because it is tracking gold, there is negative market and uncertain supply and demand fundamentals.
However, vehicle production is likely to recover once the current economic stimulus packages kick in. "If I had to choose a company to invest in, it would be Impala Platinum. Its balance sheet is strong and it operates more efficiently than Anglo Platinum," he said.
Impala Platinum is also named as JP Morgan's top pick, having strong management and large cash resources to weather the tough economic markets.
- Miningmx.com
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