Commodities | May 17 2006
By Greg Peel
There is hardly a metal on the periodic table that has been left untouched in great metals price valuation jump. Platinum has seen a major surge in price of late – major, that is, for platinum, but de rigeur when compared to everything else.
Platinum is unusual in that it is considered a precious metal, very popular for jewellery, while its primary use is in autocatalysts. Sort of a precious industrial metal. It is also very rare, such that its price makes gold look like a pretender. Platinum hit a high on Friday of US$1,340/oz, up 36% for the year.
Palladium is presently the poor cousin, trading at US$406/oz on Friday. However, the two can largely be substituted both preciously and industrially, so when one gets too expensive the other bounces back.
Johnson Matthey is bullish on platinum, despite recent gains. The industry analysts believe the fundamentals look good. Nevertheless, JM’s six month forecasted price range is US$1050-US$1,250/oz and has already been exceeded.
Most of the world’s platinum comes from South America and Russia, or from the recycling of old autocatalysts that occurs when the price encourages such supply. World supply grew by 3% in 2005, due to South American mine expansion and an 11.6% jump in aforementioned scrap recovery, to be in a modest deficit of 70koz. While autocatalyst demand increased, as well one might expect, jewellery demand turned back to palladium as a result of high prices and offset autocatalyst gains.
JM expects both demand and supply to grow, with the one impediment to South African supply being the situation in Zimbabwe. It does, however, remain cautious on prices being sustainable at these levels.
Barclays Capital believes JM’s price outlook is overly conservative.
Palladium is a bit of a different case in point, with Barclays suggesting that the biggest "wildcard" is the amount of remaining Russian state stocks. JM was not particularly bullish on palladium, but acknowledged the weight of investor interest. Being such a small market, the price could take a dive if fundamentals are not sufficiently supportive.
Once again Barclays is more positive, suggesting demand improvements and lower than expected Russian sales will yet have strong upside implications. This despite palladium being in a surplus of 1.35Moz. Jewellery demand surged 71% in 2005, which is little surprise as palladium is now that much cheaper than both platinum and gold, and is still shiny.