Platinum price to reach new highs over next quarters – CPM Group expert

The CPM Group's commodity expert Jeffrey Christian tells Mineweb why platinum is still an attractive investment and reveals some of his price projections.

JOHANNESBURG - 

Platinum is still a relatively attractive investment in the market as the price is set to increase to $2,200 in the first half of next year and to remain at high levels of around $2000- $1,900/ounce through the end of 2009 and 2010, says the CPM Group's commodities expert Jeffrey Christian.

Christian told Mineweb in an interview that the downward movement in the platinum price over the last few weeks was technically driven as new resources funds and hedge funds were simply selling because the platinum price had started to decline.

He said there were no macro economic reasons for the technical sellers' actions, nor were they acting on price fundamentals. The sellers of platinum were following a "gut feeling" and price charts that prompted them to sell when the price declined and to buy when the price increased.

Vehicle manufacturers also played a role in recent platinum price movements as they bought PGMs to add to metal inventories in the first quarter when the South African power crisis erupted, but either sold or lived off their inventories in the second quarter as they fought for survival.

However, Christian said he has seen new buying in the market over the last two weeks by investors driven by platinum's long-term fundamentals. He believes the platinum market is currently tighter compared to nine months ago as the South African power crisis in the fist quarter of the year saw producers and refineries selling off inventories.

Lower prices also dampen selling in the physical market, while the auto industry's use of platinum has probably decreased by 2% and not by 10% as commonly believed. And while South African producers are pushing as much concentrate as possible through their smelters to make up for losses, this would only cause a short-term surge in supply.

As a result, Christian expects the platinum price that has fallen 39% off highs to below $1400/ounce, to reach new highs again over the next three quarters, rising through the first half of next year, before coming off to still high levels in the second half.

Christian believes the price will also remain high in the longer term as power problems in South Africa, that will take years to solve, will stunt growth in platinum production.

"Platinum is looking attractive compared to other investments such as equities, bonds and cash," he said.

"Institutional investors are invested in cash right now, while their other investments are low. Many of them have been in platinum since the price soared from $700/ounce and are still holding. The issue is that if they take profits in platinum, they have to reinvest the money elsewhere and there are few attractive investments at the moment."

The fact that the world economy is awash in cash could bode well for platinum companies as there is a constant search for good investment commodities. Mining companies offer the additional attraction of often paying dividends to shareholders and if the price is sustained company profits should surge.

However, a factor that has gained importance over the past few years in determining the platinum price was the future price expectations of investment holders that lead them to either sell, add to or hold the metal. This comes as there has been a steady increase in resource funds, institutional investors and individuals holding platinum since 2004.

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