Platinum jumps on deficit forecast

The price of platinum and sister metal palladium moved in opposite directions Friday after a closely-watched forecast on PGM metals was released.

On the Comex division of the New York Mercantile Exchange, platinum futures for July delivery – the most active contract – in afternoon trade exchanged hands for $1,440.40 an ounce, up nearly $13 compared to Thursday’s close, and close to the highs for the day.

The price of platinum is forecast to average $1,457 an ounce in 2014, 2% down from the 2013 average of $1,487 an ounce according to the Thomson Reuters/GFMS Platinum & Palladium Survey 2014 released on Friday.

GFMS said that a protracted strike in South Africa “has not fed through to noticeably higher prices thus far this year, but is expected to lead to increases in the second half-year – even if the strike comes to an end soon.”

On 22 January, the day before more than 70,000 South African workers went on strike at Anglo American Platinum (LON:AAL), Impala Platinumm (OTCMKTS:IMPUY) and Lonmin (LON:LMI) which together account for almost 50% of the world’s production, platinum was trading at $1,450 an ounce.

Including smaller producers, the African nation is responsible for 70% of global mined supply, with Russia making up a big chunk of the remainder.

GFMS said there is a risk of “knee-jerk” falls when strike action ends, and some downward pressure from drifting gold prices in mid-year.

Roughly 10,000 ounces of platinum production and 5,000 ounces of palladium are lost each day the strike drags on and total lost output now tally some 600,000 ounces with a further 300,000 ounces even after the strikes stop “as a result of absenteeism, underground ‘safe-start’ preparation, re-training and ramp-ups,” according to the consultancy.

The strike appeared close to being called off earlier this week after producers decided to take their latest improved offer directly to workers. But no breakthrough has been reported and the militant Amcu union has threatened to attack HR staff from Amplats sent to talk to workers about the offer.

Workers have now collectively lost $650 million in wages since the labour actions began.

The GFMS report said that projected total platinum losses are equivalent to seven weeks-worth of 2013 global demand, and will tilt the platinum market back into a deficit this year after a surplus in 2013 of 490,000 ounces.

Another factor keeping platinum prices in check is increasing scrap supply. In 2013, supply from platinum autocatalyst scrap rose by 9% to just under 1 million ounces “reflecting healthy increases across all regions, following a year of notable declines in 2012.”

Autocatalyst demand fell by 1.2% to 2.91 million ounces in 2013.

Palladium eased back on Friday with June futures slipping to $812.20 an ounce, down $2 on the day.

GFMS believes palladium has bottomed out in 2014 and robust demand is expected to propel the price towards $930 before year-end. This year’s average is forecast at $793 an ounce, a gain of 9% over the 2013 average of $725.

Production of the metal, often used as substitute for platinum in catalytic converters, is even more concentrated than platinum, with South Africa and Russia controlling more than 80% of global supply.

Palladium has also been influenced by the highly successful launch of two South African palladium ETFs which have accumulated holdings in excess of 400,000 ounces.

Palladium losses as a result of the strike are equivalent to two weeks’ global demand at 2013 rates and will keep palladium in a deficit in 2014 for the eighth consecutive year. GFMS also does not expect further shipments of palladium stock from Russia this year.

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