Platinum Could Rise to $1,700 by Year End, Average Projected at $1,457: Thomson Reuters GFMSThis year’s Thomson Reuters GFMS Platinum and Palladium Survey is out, and it looks like in 2014 the platinum price is expected to stay relatively flat at $1,457 per ounce; that’s 2 percent lower than last year’s average.

However, GFMS analysts also expect platinum “to exceed the $1,700/oz level by the end of this year,” so investors are hopeful that the white metal may see gains yet. The firm made its projection on the basis that rising platinum demand will be outweighed by significant decreases in mine supply and production.

Meanwhile, the average price of platinum’s sister metal, palladium, is expected to see gains of 9 percent from 2013. GFMS believes it has already bottomed out for this year. “[R]obust demand is expected to propel the price [of palladium] towards a test of $930 before year-end. This year’s average is forecast at $793 /oz,” the firm said.

Those gains will be driven in part by early 2014 tension regarding Ukraine, as the threat of sanctions, which would stop platinum and palladium exports from Russia, is expected to augment prices for the metals. As GFMS states in the report, “[a]lthough our base case expectation is that such measures will not occur, we fully recognize that these events will continue to provide a risk premium, especially to palladium.”

Tipping scales

According to the report, demand for platinum is “forecast to increase and reach its highest level in six years” on higher demand from US and European auto markets and an overall global economic recovery, while an estimated 20-percent drop in South African platinum production will bring down global supply significantly. The report specifically states that recent Euro 6/VI emissions legislation for passenger vehicles and heavy duty diesel vehicles will spark demand from European autocatalyst markets in the near term, noting that the glass, chemical and petroleum industrial sectors should significantly increase their demand for the white metal as well.

On the supply side, platinum levels worldwide are expected to reach their lowest in 14 years, with a projected deficit of 700,000 ounces. Although scrap recycling is likely to increase, the volume will not be enough to significantly correct the broader deficit, which is being exacerbated by labor disputes in the world’s largest platinum producing nation, as per GFMS.

Too late to recover

GFMS also touches on the ongoing miners’ strike in South Africa, estimating that 600,000 ounces of platinum production have been lost so far. An additional 350,000 ounces are projected to be lost during the gradual ramp up of mine production as well as the rehiring and retraining of workers, “even if a near term resolution is found.”

The firm acknowledges that the strike has not had much of an effect on platinum prices thus far, and concedes that some brief downward pressure will be likely be applied when the strike ends. However, it also states, “[w]e are unconvinced that the market fully appreciates the challenges associated with bringing production back online in a timely fashion and do expect that these shortfalls will have a positive influence on price.”

The positive outlook for platinum prices this year follows a weak annual average in 2013. Due to a surplus of 490,000 ounces and deflated global demand, average prices for the white metal last year sank to their lowest point since 2009.

 

Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned in this article.