December 22, 2004
Justin Brown
Platinum is likely to remain firm in 2005 on the weak US dollar as well as the threat of cuts to expansion plans in South Africa due to the strong rand, analysts say.
However, the price of the metal, which is used mainly in jewellery and autocatalysts, may face some downside, as 2005 could be the first time in six years that the global market for platinum will move into surplus.
London-based analyst for Barclays Capital Kamal Naqvi expects platinum to trade in a range between $750 an ounce and $950/oz in 2005. In 2004, platinum traded between $766/oz and $944.50/oz.
At 1pm on Wednesday, platinum was last quoted at $842/oz. In April 2004, platinum touched $944.50/oz, the metal's highest level since 1980.
During 2004, the platinum price averaged $845/oz, the highest annual average since 1980.
In 2005, investment bank UBS sees the platinum price averaging $725/oz.
UBS sees the platinum price falling next year as the market for the metal returns to surplus and a decline in the broader commodity complex weighs on the metal.
"I think that the market is too bullish about platinum," London-based UBS analyst John Reade said.
From a technical perspective, investment bank JP Morgan expects platinum to continue to range trade between $807/oz and $891/oz.
Near-term resistance is seen at $860/oz for platinum, while near-term support is called at $827/oz, JP Morgan said.
A breakout through $891 would increase the odds that the consolidation for the platinum price is over and the market would then shift its attention back to the long-term high of $944.50/oz high, JP Morgan added.
In November, UK specialty metals group Johnson Matthey forecast that in 2005, supplies of platinum would expand faster than demand, so that the market will move into surplus for the first time in six years.
The key source of new platinum metal supply will be South Africa's mines, which produce about 75 percent of annual global platinum output.
The last time the world market for platinum was in surplus was in 1998, when Johnson Matthey put the surplus at 30 000 oz.
World number two platinum miner Impala Platinum (Implats, IMP) expects that the global platinum market will end 2004 with a surplus and that that surplus will increase in 2005, Implats marketing executive Derek Engelbrecht said in November.
Implats sees the world platinum market ending with a surplus of 50 000 oz ounces, while in 2005, that surplus is likely to increase to between 100 000 oz and 150 000 oz as more primary platinum metal comes on to the global platinum market.
In November, Johnson Matthey said it expected platinum to trade in a range between $760/oz and $880/oz in the period to May 2005.
A key concern in the platinum market is the decline in the demand for platinum jewellery, especially in China.
On the other hand, demand for platinum is likely to continue getting support from tighter emissions legislation in Japan, the US and Europe.
Emissions legislation, which began in the 1970s, has become increasingly onerous and is expected to continue becoming more so.
As new legislation is implemented, so demand for platinum use in autocatalysts is set to increase.
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