PLATINUM GROUP METALS

Platinum:gold ratio falls further

While the near term outlook for platinum remains rather poor, both HSBC and Barclays remain positive on its long term fundamentals.

Author: Geoff Candy
Posted: Friday , 10 Aug 2012

GRONINGEN (MINEWEB) - 

The platinum-gold ratio has fallen to levels last seen in 1985. And, according to Barclays, there is little in current market dynamics to suggest that in the near term this trend will reverse.

Writing in its Commodities Weekly report, the bank points out that while gold has been struggling to break free of the upper end of its trading range, Platinum has been drifting lower over the past month.

 

SGE - Shanghai Gold Exchange

As can be seen from the above graph, after a sustained period where platinum prices were higher than those of gold this relationship changed at the end of September 2011 and has remained the status quo for most of the rest of the next 11 months.

But, over a longer period, this is a fairly unusual state of affairs. As HSBC points out in its recently released Platinum Group Metals outlook, "In the past 20 years, platinum has fallen to a discount to gold on only two short-lived occasions, for a couple of days in December 2008 and a few days in December 1996."

HSBC goes on to point out that, consumers generally consider platinum to be superior to gold based on its relative scarcity and historically higher price levels. But, in the last few months, this has been largely made null and void by the crisis of debt and confidence in Europe.

As Barclays writes, platinum has been drifting lower over the past month searching for its floor - previously, it had found support from buying in China and cost support.

"Buying in China has picked up over the past four months and shipments have improved as jewellery fabrication demand has recovered... However, given the weak auto demand outlook for platinum - being skewed towards Europe - in the near term, the supply side is key."

As the bank points out, "From a cost perspective, the bulk of PGM production is under water at current prices after accounting for sustaining capex. The continued ZAR weakness has provided a temporary respite for producers, and production cutbacks to date have been limited and not sufficient to balance the market. Further, at a meeting between the South African Mineral Resources Minister and Chief Executives of the PGM mining companies to consider the challenges facing the sector it was agreed that all measures to support the industry will be explored before retrenchments, in turn, implying further production cutbacks are unlikely in the near term."

As a result of these two sides of the equation Barclays believes that while the spread between the two metals might narrow, the outlook near term for platinum remains fragile but, over the long term platinum's fundamentals remain better.

This assessment is supported by HSBC, which lowered its platinum price forecasts for the rest of 2012, 2013 and 2014, but has kept its long term forecasts constant. According to the bank, "According to our supply/demand model, the platinum market ran a substantial supply/demand surplus of 687,000oz in 2011. We anticipate that this surplus will narrow to 325,000oz this year and contract further to 102,000oz in 2013. We expect that reduced mine supply will play an important role in narrowing  supply/demand balances and help propel prices higher from current levels for the balance of this year and in 2013."

ipad pic: A Platinum Bar is placed on the floor of the New York Stock Exchange in New York: REUTERS/Shannon Stapleton