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Why the platinum price is going to keep climbing… and how you can profit from its move higher

by , 01 August 2014

This year will see global platinum supply touch its lowest level in 14 years. This as demand for the precious metal is reaching its highest level in six years.

The supply squeeze on platinum is mostly down to the five-month strike that affected the top three producers of the metal.

So where is the platinum price headed? And how can you get in on a platinum play? Read on to find out…


The impact of the platinum sector strike


After a five-month long strike, 70,000 platinum miners went back to work on 24 June. This strike is the longest and most costly in South African history.

If someone explained the scenario to you and asked what the price of platinum would do, you’d probably say it would fall once the strike was over. But you’d be wrong.

It did the exact opposite, Dominic Frisby in Money Morning UK explains. The price jumped higher. The platinum price hit new highs for 2014.


So why did the platinum price do that?


The after-effects of the strike are still ongoing. The affected companies are still not back to full production. And won’t be for a few months. The strike cost an estimated 1.3 million ounces of platinum to the industry.

With SA producing 70% of the world’s platinum, if something affects supply here, it has consequences.

For this year, the global platinum supply will be about 5.6 million ounces. A staggering 4 million ounces is from SA. 750,000 ounces is from Russia. And the remaining 850,000 from other mines, mainly in Zimbabwe and North America.

Now Zimbabwe has a few issues with its platinum supply. Its biggest mine collapsed and this is going to affect about 50% of its production. That’s about 1% of global output and 12% of the platinum out of Zimbabwe.

As well as platinum mined, around 2.2 million ounces are from recycled sources. This brings the total supply for the year in at 7.8 million ounces.

Now if you look at platinum demand, you can see the problem…

Platinum demand stands at nearly 9 million ounces. So that leaves a deficit of over 1.2 million ounces.

Last year, platinum demand rose 5%. For the previous ten years, demand rose by 3%. A forecast by SocGen puts an increase in demand at 6% this year.


So who uses platinum?


It has several uses:

  • In catalytic converters, which uses around 40% or 3.4 million ounces.
  • For jewellery, which uses around 40% or 3.2 million ounces.
  • Industrial demand, which uses around 2 million ounces.
  • Investment demand, which uses around 385,000 ounces.

(Exchange traded funds (ETFs) currently holds around 3 million ounces.)

With car sales climbing in Europe and Asia, the demand for platinum will be strong. And this is going to result in a rise in demand.

As demand continues to rise, so will the price of platinum.


How to profit from the rise in the platinum price


Many of the platinum producers are struggling with costs.

One of the easiest ways to invest in platinum is to buy into a platinum-backed ETF. You can speak to your stockbroker about how to do this.

So there you have it, why the platinum price is going to keep climbing and how you can profit from its move higher.

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Why the platinum price is going to keep climbing… and how you can profit from its move higher
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