Platinum's taking a turn in the shithouse these days. Thoughts?
I recently wrote some IR's guys within Platinum companies in South Africa and here is some info I got from them:
Thank you for the prompt response.
Here is article for the five metric tons of oversupply:
Quite interesting how they predict these numbers. I'd be very curious to see where they come up with them. IT DEPENDS VERY MUCH ON HOW THEY CLASSIFY THE VARIOUS ASPECTS OF PLATINUM DEMAND. I SUGGEST IGNORING PRESS AND BLOOMBERG REPORTS ENTIRELY, IN FAVOUR OF REPORTS BY JOHNSON MATTHEY. THEY HAVE THE BEST INSIGHTS INTO THE PLATINUM MARKET.
As much as the automobile industry has not recovered, do you feel that all the new sales in China and India will make up for lost sales in the West? NO. SALES IN THE WEST ARE RECOVERING SLOWLY TO PRE-CRISIS LEVELS, BUT IN THE SHORT TERM THERE ARE SIMPLY FEWER CARS THAT USE PLATINUM BEING PRODUCED. WHAT WILL HAPPEN IN FACT IS THAT IN 12 - 18 MONTHS OR SO, WESTERN CAR SALES WILL BE BACK TO PRE-CRISIS LEVELS AND SALES IN CHINA AND INDIA WILL BE TAKING OFF, LEADING TO A SPIKE IN DEMAND FOR PLATINUM WHICH WILL NOT BE MET BY MORE MINE SUPPLY - SO PLATINUM PRICES SHOULD ESCALATE MATERIALLY.
Along with that, I am seeing that diesel is becoming more and more popular in North America with rising fuel prices, and platinum is used more in diesels than unleaded vehicles, right? That would impact sales as well, right? CORRECT ON BOTH COUNTS, AND ALSO THE US AND EUROPE ARE BOTH CATALYSING HEAVY TRUCKS FOR THE FIRST TIME, ALL OF WHICH ARE DIESEL. AGAIN IT WILL TAKE SOME MONTHS FOR THIS EFFECT TO SET OFF THE OVERSUPPLY THAT RESULTED DURING THE CRISIS. THE MEDIUM-TERM DEMAND OUTLOOK IS EXCELLENT, BUT IN THE SHORT TERM THERE IS SLIGHTLY TOO MUCH METAL TO BE HAD.
Do you have any thoughts on what might happen to platinum prices, production and investment in future mines if the Rand continues to strenghten against the USD, essentially eating at any gains that might be attained due to spot prices rising? WE (AQUARIUS) HAVE RECENTLY ANNOUNCED THAT WE ARE NOT OPENING A MINE THAT WE HAVE BEEN DEVELOPING. IF THE RAND GETS STRONGER, EITHER DOLLAR PGM PRICES NEED TO GO UP, OR THE INDUSTRY WILL DIE - NO INVESTMENT, EXISTING MINES WILL BE CLOSED, AND THERE WILL BE NO GROWTH IN PRODUCTION. YOU HAVE TO REMEMBER THAT THE INDUSTRY CANNOT BE ALLOWED TO DIE, HOWEVER, AS DEMAND FOR PLATINUM IS LEGISLATED ACROSS THE GLOBE, IT IS NOT A DISCRETIONARY PURCHASE. AS A RESULT THE ONLY PRACTICAL OUTCOME IS THAT DOLLAR PRICES MUST RISE. THERE WILL BE A FEW MORE MONTHS OF PAIN FOR THE INDUSTRY, BUT AS DEMAND TIGHTENS, PRICES IN RAND MUST GO UP.
I'm not really where you are, so all the news I get is from what I read. Can you tell me first hand how bad the labour situation and electricity supply situation is; do you expect any significant losses in production with Aquarius or any other big miner due to either of these? I CANNOT SPEAK FOR THE OTHER MINERS BUT WE DON'T ANTICIPATE LOSING ANY PRODUCTION DUE TO LABOUR OR ELECTRICITY. STRIKES ARE A RISK, BUT WE DO OUR BEST TO AVOID THEM. THE UNIONS ARE VERY STRONG AND IT IS NOT AN EASY OPERATING ENVIRONMENT AS A RESULT. ELECTRICITY IS IN SHORT SUPPLY AND DURING THE NEXT TWO WINTERS THERE COULD BE BROWNOUTS. THESE WILL EFFECT OUR DEEPLEVEL PEERS MORE THAN THEY WILL EFFECT US, BECAUSE WE USE MECHANISED MINING (DIESEL, NOT ELECTRICITY). OF MORE EFFECT WILL BE THE COSTS OF BOTH. LABOUR COSTS WILL CONTINUE TO INCREASE AT DOUBLE THE INFLATION RATE, AND ELECTRICITY IS GOING UP AT 25% PER YEAR. THIS PUTS PRESSURE ON MARGINS AND WILL RESULT IN MORE UPWARD PRESSURE ON PGM PRICES.
I also see the issue of nationalization becoming significant. It makes me wonder how companies are found willing to work with all these negative factors. All the power to the staff there. THANKS. IT ISN'T EASY.
If there is a recession and car sales slow, do you see platinum strength continuing with gold, if gold were to continue upward? SOME PEOPLE HAVE THIS VIEW. I DON'T, HOWEVER. PLATINUM IS NOT A 'STORE OF VALUE' LIKE GOLD. IT IS A RARE INDUSTRIAL METAL RATHER THAN A PRECIOUS METAL. WHEN INDUSTRIAL DEMAND SLOWS, THE PRICE COMES DOWN.
One last opinion, I promise. What heights might you see platinum hitting in the next 1-2 years? My investment in the company is long term, however, my bullion is a hedge for which I hope to use to buy a house. I CAN'T OFFER YOU INVESTMENT ADVICE, BUT I CAN EXPLAIN HOW WE THINK ABOUT PRICES. WE THINK OF THE PRICE IN RAND, NOT DOLLARS. I DON'T KNOW WHAT IS POSSIBLE, BUT OUR VIEW (HELD BY MOST OF THE INDUSTRY) IS THAT THE RAND BASKET PRICE FOR PGMS NEEDS TO BE AROUND R14,000/OZ FOR THE INDUSTRY TO MAKE SUFFICIENT RETURNS TO INVEST IN GROWTH. AT THE MOMENT IT IS R10,500 - SO THE PRICE IN RANDS NEEDS TO RISE BY 30-40% FROM THE CURRENT LEVEL, I EXPECT DURING THE NEXT TWO YEARS, IN ORDER FOR THE INDUSTRY TO BE ABLE TO MEET INCREASED GLOBAL DEMAND. WHETHER THIS COMES FROM RAND WEAKENING OR DOLLAR PRICES RISING IS ANYONE'S GUESS. I IMAGINE IT WILL BE A COMBINATION, BUT MOSTLY FROM THE DOLLAR PRICES. IT ESSENTIALLY HAS TO HAPPEN - THE ONLY DIFFICULTY IS PREDICTING PRECISELY WHEN. BY THE WAY, A BASKET OUNCE IS 60% PLATINUM, 29% PALLADIUM, 10% RHODIUM AND 1% GOLD, WHICH IS HOW THE METALS COME OUT OF THE GROUND NATURALLY. THE RAND BASKET PRICE IS A WEIGHTED AVERAGE OF THE DOLLAR PRICE OF THOSE METALS MULTIPLIED BY THE RAND DOLLAR EXCHANGE RATE.
Thank you and take care. You have been a great help.
Happy to help. I am not sure where your information comes from but 5 metric tonnes of platinum is 160,000 ounces. There will be a surplus of platinum this year, but nothing like as much as that. It is more of the order of 20,000 ounces (0.6 metric tonnes).
There has been a surplus since the 2008 financial crisis, as labour unions in South Africa make it difficult to reduce production in response to poor market conditions. Platinum recovers late in the economic cycle, as it is used in consumer good such as cars and jewellery. The automobile industry has not recovered to pre-crisis levels yet, and investment demand (ETFs and your platinum bullion) have made platinum too expensive in dollar terms for much jewellery demand to survive.
However, the labour conflicts and increasing depth of the mines that you have heard about do exist, along with many other supply-side issues, and what that means is that the industry as a whole will also struggle to increase production when it needs to. Labour is a universal problem but Aquarius is afflicted by the other issues (depth etc) to a significantly lesser degree than its peer companies. At the same time, fundamental demand for platinum is improving all the time; for example China will require all of its cars to be fitted with modern PGM catalysts over the next 12 months, while Europe and the US are slowly getting back to pre-crisis levels of car sales. This means that in the medium term, platinum will be in deficit once again. More demand and no possibility of materially increased supply means that the mid-term outlook is exceptional for these metals; but in the short term there is a slight surplus. My personal view is that platinum (and Aquarius in particular) are very good investments, but require a longer-term investment horizon, for all these reasons.
This is a complex topic and I have given you a relatively brief answer. I highly recommend that you visit Johnson Matthey’s platinum website, www.platinum.matthey.com for a more in-depth view. Their research and reports are extremely useful and comprehensive.
If you review the link, you will see this:
“The discrepancy between the Swiss and Chinese data remains, and is widening. The Chinese data indicates that imports from Switzerland were only 19,880 oz, compared to the 62 k oz the Swiss reported. As highlighted previously, this indicates that perhaps Chinese platinum demand is not weakening as much as suggested by the official figures.”
The Swiss say they ship 62K oz of platinum to China, however, China says they only imported 20k from Swiss. They claim 1/3 of what the Swiss say they shipped. Really odd, no?
Also, another interesting article:
Rico, what are your thoughts on platinum? If I may, do you hold any platinum; in what capacity?
Jack, thank you so much for the long post above with the various links to platinum. I have never really found a good discussion like this before of how platinum is doing and where platinum is going. I became interested in the metal ever since buying a platinum eagle proof coin from the US Mint and have found myself somewhat puzzled by it (and its "twin," palladium) stubborn refusal to rise along with other commodities and its vulnerability to huge price swings.
I feel like I understand things much better now after your post. A question, do any major organizations hold significant stocks of platinum bullion at all (Banks, investment firms, etc)?
I'm a huge platinum fan. Here is some of the info I have come across that I like:
https://lhmarketwatch.blogspot.com/ -great blog and he is a big fan of platinum; search his blog to get some info
What are your thoughts on the metal; what is your background?
Thanks again for the link list.
As for my background, I don't really have much of one, I'm not an expert trader or anything, just an ordinary guy interested in metals and coins. I began buying precious metals in September 2009 when gold was about $950 because of concerns about inflation and the financial stability of the United States, something I'm glad I did as my investments have paid off quite handsomely. That led me into becoming interested in numismatics and "alternative" precious metals such as platinum. Gold and silver and collectible coins have lots of information that is easily accessible, but these more traditional communities do not spend much time discussing platinum or palladium to my frustration. Nonetheless, I sold off some of my junk silver to raise some cash and bought myself a platinum eagle from the Mint this year.
Now if you still want to hear my thoughts, I think given the dependence of platinum on the automotive market we may see more problems with the price declining, because I think the economic crash is going to seriously depress automotive sales once deflation wipes out peoples' jobs or once hyperinflation destroys peoples' ability to buy a car.
With that having been said, I'm not quite ready to discount platinum just yet, because I think it has some chance of becoming accepted as form of currency alongside gold and silver, and if big banks like JP Morgan are beginning to vacuum up stocks of platinum there must be some value in it outside the automotive industry. I do think platinum's path may be more murky and unstable than gold and silver, but I believe it will eventually end up in the same place those two metals do, in spite of its relative rarity. People often say platinum is "new" and doesn't have the history gold and silver does, but for the last 50 years or so various mints around the world have minted various coins in platinum and it is often used in jewelry, so it is not unknown to the public.
Palladium I am not so bullish on. It is pretty new in comparison with platinum. I think an economic crash is going to hit it much harder than platinum and collapse the price. While a few Mints sometimes make coins out of it, this is not nearly as common as platinum. You just don't see people buying up bars of palladium as opposed to platinum, gold, and silver.
I like platinum a lot myself, it is simply an affinity not anything to do with an investment decision. As for future prospects, platinum has the highest value density and is rarer than gold. I think this feature will be a large benefit as people will think of it in similar terms as gold. It will still be subject to price swings due to industrial use, there is no getting around that. Palladium on the other hand is in no man's land as far as value is concerned. Why but palladium when you can buy a half oz of gold? You want a cheaper alternative to gold, buy silver. Palladium is almost pure speculation. I dont see palladium in the same way I do platinum.
I like platinum for the volatility of where it comes from. 75% of platinum is mined from South Africa and if you do some research, there are a few people in power that would love to nationalize mining there. Production is only about 6 million ounces per year and about 1.8 million from recycling. To go with that, there is always fear of an electricity stortage, labour strikes and the stronger RAND has stopped projects because is does not make it feasible.
While we might have a recession, I think global car production is getting larger and larger, year over year, with BRIC (Brazil, Russia, India and China) coming online. To go with that, China is introducing stricter emission standards, which will do well for platinum. Along with that, the Western world sales might be sluggish, however, emission control it getting tighter and tighter, which again means well for platinum.
I have also heard diesel vehicles are selling more and more in the US due to gas prices, which platinum is used more in.
I like the overall picture of platinum and feel it is very underpriced. One of the bloggers I follow feels it could easily be cornered on the comex and have the price shoot through the roof. I feel we are entering a slow period for the next 4-6 weeks, then again, who knows with today's market. I am anticipating some interesting info from the US in regards to the debt ceiling and some version of QE3, which should make things interesting.
I think if auto industry and the BRICs are able to weather the recession, you will probably be proven right in the longer term about the value of platinum. China, especially, becoming more environmentally conscious will make platinum go to the moon - look at what Chinese demand for oil has done to oil prices! I also agree that the scarcity of the supply would make it easy to corner (assuming it was a government that did it). In this regard I suspect platinum is probably a better long term investment than gold, because gold is best to have in times of instability.
My main concern is that the recession/inflation will become so bad that the auto industry and China might get knocked back on their heels for a decade or two. I want to be clear I'm not inclined to think things are THAT bad just yet (if I thought they were I wouldn't have bought a platinum coin), but some of the stuff I'm reading makes me worry that it is at least a possibility that must be considered.
S.Africa Nationalization Talk May Cut Output, Impala Says (1)
South African mine production may drop as foreign investors get “cold feet” following a call from the youth wing of the ruling African National Congress to nationalize the industry, Impala Platinum Holdings Ltd. said. -great for prices; more info here:
Impala Platinum Holdings Ltd. (IMP) , the world’s second- largest platinum producer, rose for a fourth day, increasing 1.11 rand, or 0.6 percent, to 182.11 rand. Chief Executive Officer David Brown said palladium may trade at around $700 to $800 an ounce in the next six months or so. Platinum may trade at levels higher than $2,000 an ounce, he said in a speech yesterday. found in this link:
I don't think Platinum will get above 1750--it's an industrial metal, and I think the huge moves of the last couple days are driven by insane hopes that all is basically OK with the worldwide industrial economy (same with copper). I think Q3 will be toast, and there will soon be rending of clothes, and gnashing of teeth...
Am short at 1723--will see what happens, I guess
I covered--can't fight the mo. Still think it's shortable in Q3, but will wait for a better entry point.
I'm more inclined at this point to agree with Jack that platinum has some room to climb (provided the auto industry doesn't cave in on itself). The fundamentals seem pretty strong and if the South African platinum mines are actually nationalized, look out!
I don't personally like platinum for jewelry, prefering palladium much more over the "nobeler" metal. Nevertheless, some time back the gold:platininum ratio hit 1:1 and I shunted all my gold into platinum and came out with a very nice profit. If it hits that ratio again, I will definately repeat the operation. It's been testing 90 so it's possible though not probible.
Truly palladium makes much nicer jewelry than platinum or white gold.
Some info from a platinum company. Largely opinions but who better:
My view is that the threat of strikes is very real. Unions are asking for between 14% and 20% wage increases, in a country with less than 5% inflation. I imagine the companies would be willing to settle at around 10%, but no higher, so strikes are inevitable. Aquarius usually settles wage negotiations after the majors, so that is still coming.
The Eskom strike is still a threat, and I believe is in fact likely to happen imminently – within the next few weeks. They have declared a dispute which is being assessed by the Commission for Conciliation, Mediation and Arbitration. This is the last step before strike action can occur.
Malema is the only person advocating nationalisation, and more and more people are coming out against it in public. It is not ANC policy and I think the chances of it happening are remote. That said, the Youth League represents a very large and growing demographic (18-25 year-olds) who have the highest unemployment and illiteracy rates of any group in the country. They are unfortunately economically ignorant, and listen only to Malema. So the threat of nationalisation is remote but the government cannot afford to marginalise Malema and his voters – hence the continuing noise. I think the noise will continue for some time to come.
I then asked this: "With the potential mining and Eskom strike, do you expect lost production in platinum mining in South Africa?"
To which he answered: "Almost definitely."
...which is something you don't get very often.
Give this a read and let me know what you think:
Great article, Jack. King's thoughts on inflationary forces mirror my own - regardless of any short term dips, we are going to keep on seeing price increases year to year. I'm pretty much just waiting on platinum to have its big breakout like gold and silver have been having. I will look into some of these companies King recommended as well. Thanks for the tips.
I sold $50K PHYS and moved the proceeds into PPLT at today's 1:1 ratio. With gold on fire, it won't be a quick paying investment but I fully expect to make the 20% as platinum moves back to 1:.80 and metals rise.
This is only the second time I've seen the two at 1:1 and I made a bundle the last time I switched out of gold into platinum at this ratio. Not sure about the timing but sure of the eventual outcome.
I agree, platinum right now seems very cheap. While the price of gold goes berserk, I'm inclined to quietly pick up a little more platinum and wait for it to have its own big breakout. I am willing to be patient - after all, gold really has only been serving a flight to safety function properly for a few weeks.