Platinum – Tracks Higher On Supply Restraints

March 22, 2010 - Barclays Capital notes an increasingly supportive demand picture has helped the precious metal Platinum this year. Platinum prices have risen to levels that haven’t been seen since August of 2008. Expectations are that prices will continue to build on these gains throughout 2010.

The ongoing issues in South Africa, which supplies around 80% of global output of Platinum, has been dogged by challenges such as power outages, and financing issues. These same issues have contributed to producers in South Africa faced rising cost pressures, which included a stronger currency, above-inflation wage increases and double-digit hikes in electricity tariffs.

Estimates put the weighted average cost of production increasing by more than 10% in year-on-year terms. Meaning 2010 probably won't deliver any easing in cost constraints as biennial wage negotiations were settled for one year in many cases and so remain something of an issue. As well, in February Eskom, South Africa's dominant power generator was granted permission to lift electricity prices by 25%. This will further add to production costs. Hinting that higher prices will be needed for the precious metal Platinum to cover total costs and encourage new supply.

Some longer-term structural issues could also hinder supply, as Eskom has cautioned power supply may not be able to keep up with increased demand starting as early as 2011, a reflection of a lack of investment in ageing production plants.

Most platinum producers are outputting relatively flat production in year-on-year terms, but Barclays suggests the potential for mine safety closures, labor disputes and power issues to disrupt supply implies any supply growth prospects are risky at best.

If you are interested in learning more about the unique investment opportunities in Platinum, contact one of our precious metal experts who will be happy to assist you.

Daily Updates Archive

Danny Burns

Senior Staff Writer - Precious-Metal.org