In the last couple of weeks platinum has been in a correction phase; the precious metal fell from its high of about $1,850 per ounce to a day low of $1,654 per ounce on March 17 - its lowest level since the fourth quarter of 2010. However, there are signs of growing interest among investors. The correction was mainly triggered by market fears of a heavy recession in Japan in the wake of the country's earthquake, as well as the deteriorating political situation in Libya, as outlined in a report by German precious metals trading group Heraeus.
It is highly unlikely that platinum will experience another sales flood in the short term - despite Japan's precarious situation and other such pressures. Platinum and palladium prices are dependent on industrial demand, thus their prices follow cycles in the global economy. The automobile industry is one of the strongest buyers in this sector, owing to the two metals being used in the production of catalyst systems. The production stop among Japanese automobile firms increased fears that car makers in other countries would be forced to stop production since Japan could not supply car parts.
General Motors, Opel, Peugeot and other international car producers have announced that they might have to introduce short-time work again, since the production of certain models or parts has had to be curtailed. However, the markets seem to have anticipated these problems, since the long contracts held by investors at futures exchanges in New York and Tokyo lost almost 20 tons and 25% respectively two weeks ago. As a result, the Heraeus report further states that there is not much leeway for further price declines in the platinum market. Investments in Exchange Traded Funds (ETFs) also fell by about one ton.
The setback in the investment sector was much more moderate in comparison with the one among industrial end users. According to Heraeus, the drop in price led to a large number of new hedging contracts at futures markets among end users, who have taken advantage of the correction to purchase platinum at a cheaper price. This buying has amounted to several tons in the case of platinum as well as palladium.
Stock prices of platinum miners listed on the South African stock exchange have experienced strong price setbacks this week, after Zimbabwe's government gave foreign mining companies a deadline of six months to sell their majority stakes to black investors. The stock price of the mining giant Impala Platinum - the second biggest enterprise in this sector - as well as Aquarius Platinum - the fourth biggest platinum miner - were particularly badly affected. Last Friday Zimbabwe's Government Gazette reported that Robert Mugabe had granted these companies just 45 days to provide detailed plans of ways of transferring ownership of these companies. Mugabe hopes that this foolish move will earn him more political support from Zimbabweans.
According to Johnson Matthey, Zimbabwe currently accounts for 4.5% of annual global platinum production, and 3% of palladium production. Investors are also concerned about continuing legal uncertainties in neighbouring South Africa, which is the world's biggest platinum producer.
Roman Baudzus is a contributing writer for GoldMoney.
Copyright GoldMoney (c) 2011. All rights reserved.
