Platinum could breach $2,000, says GFMS

Brendan Ryan | Thu, 05 May 2011 23:46

[miningmx.com] -- THE platinum price was likely to range between $1,675/oz and $1,925/oz during the rest of 2011 but could go through the $2,000/oz level depending on the level of investment demand.

That’s according to GFMS CEO Paul Walker who presented the UK metals research consultancy’s latest survey of the platinum and palladium markets in Johannesburg on Thursday.

Walker stressed the sensitivity of the platinum price to investment demand because of the small size of the platinum market when compared with the gold market.

He commented, “you are looking a flow of investment funds into the platinum market of around $1bn during 2010 which compares with annual flows of around $100bn into the gold market.

“The investment flows into the palladium market are even smaller - around $150m annually. At some point in the future the flow of investment funds into these metals will be affected by rising interest rates but platinum and palladium price levels look far more sustainable under those circumstances than the gold price.”

Turning to palladium, Walker said he expected the metal to trade between $650/oz and $975/oz during the rest of 2011.

The GFMS survey estimated platinum supply at 7.7m oz during 2010 and demand at 6.73m oz putting the market in a gross surplus of 962,000oz .

That surplus was taken up by investors with net inflows of around 550,000oz into exchange traded funds (ETFs) and the balance "attributable to increased net investment in futures products, primarily on the Nymex".

Walker expected that the platinum market would show a similar surplus during 2011 as South African production continued to recover. He also expected the rate of recovery in automobile production to slow from levels seen in 2010 levels which would affect demand for platinum in autocatalyst.

Palladium supply amounted to 8.1m oz during 2010 while demand was estimated at 8.6m oz putting the market into a gross deficit of 551,000oz.

Walker said the palladium market was likely to show a similar deficit in 2011 to that recorded in 2010.

The survey added that, “given palladium’s rapid ascent over the recent times, it is quite vulnerable to the risk of profit taking and is lacking in price-supportive jewellery demand.

“Consequently palladium has the potential to trade as low as $650 during the course of 2011; a level which would most likely be seen as an attractive entry point for investors and consumers seeking a bargain.”

The GFMS report highlighted a slump of 31% in jewellery and retail investment demand for palladium during 2010 “in the face of significantly higher prices and a general disenchantment with palladium jewellery in China.”