Platinum is widely used in ‘catalytic converters’ - devices that turn toxic gases into clean air emissions. The problem now is that auto forecasts for 2009 are alarmingly low. This means demand for the metal has already started falling, while supplies are rising. The result of course is a drop in price.
Also, automakers are looking at alternative materials such as palladium, which is four times cheaper than platinum. This is further hurting its industrial demand.
Take a look at the chart below. It puts platinum’s pricing in context to its historical average, showing its performance from 1992 to date. You can see an uptrend for the last two years - this coincided with the boom in the metals market.
In March last year, platinum spiked to an all-time high of $2,276/oz (circled) because of supply disruptions in South African mines. It is currently still a good 50% off last year’s record-high.
Platinum’s price is likely to remain depressed this year
This time around, the issue is less about supply and more about lowered demand, which is about to get worse. The ‘Big Three’ car makers, namely, Ford, Chrysler and GM have already slashed production by 30%-53%. Other players have followed suit. That’s bad news for platinum.
Metals group Johnson Matthey is bearish on the metal as well, predicting a 6% plunge in demand this year. Deutsche Bank sees platinum averaging $1,025 over the next six months.
Despite platinum’s good performance in the last six months, weak demand from industrial users will keep its prices from revisiting 2008’s high. And although the metal looks to trade higher than its $677 long-term average, don’t expect its price to rise much above current levels in 2009.
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