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Analysts believe platinum is soon to rebound

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum plunged to a new low on Tuesday, dropping below US$1000 an ounce for the first time since 2006.

Platinum ^[2] dropped US$96.00, or 8.8 per cent, to hit US$994 on the London Metal Exchange (LME). At its current price, platinum is down 57 per cent from its record high of US$2301.50 it hit on March 4. Analysts are optimistic about the future of this metal, predicting that it will rally to US$1448.20 an ounce in the near future. 

A surplus in the platinum market is anticipated this year as falling car sales and growing global economic uncertainty hit demand. But the surplus will not be as large as initially anticipated as an unclear supply outlook stemming from a skills shortage, inflation and promotion of employee safety, is expected to curb production in primary producing South Africa. The platinum market has been in the deficit for the last seven years, helping spot prices surge to a record high in March, before dropping to US$1,042/oz earlier this month.  

Platinum's primary use as an auto catalyst is adding negative sentiment - carmakers like Toyota Motor Corp ^[3] have been reducing production plans on demand slowing in the U.S. and other major markets. High fuel costs means that there has been a shift in demand in the auto sector to smaller vehicles; which require less platinum in their construction. Active platinum selling by investment funds has also undermined prices, but while prices will stay under pressure for the next six to nine months, falls will be limited due to concerns over supplies

The most active Tokyo platinum contract dropped by the daily Y300 (approx US$2.83) limit on Tuesday on fears of weakening demand from automakers, with a stronger yen also hitting the market. The benchmark contract for August 2009 delivery JPLc6 on the Tokyo Commodity Exchange fell to as low as 3,457 yen (approx US$32), it's weakest since November 2005.

Japan's Toyota Motor Corp said it started cutting production in China as sales growth in the region fails to meet expectations. A number of other car-makers have already said they are cutting production or sales targets due to slowing U.S. economy.

Company news

The surprise exit of Lonmin's ^[4] (TSX:LMI) chief executive has left questions surrounding the proposed takeover of the platinum miner by Xstrata. Brad Mills is to step down with immediate effect, just days before Xstrata ^[5] (XTA:L) must decide whether it is to launch a £5 billion takeover bid. Ian Farmer, Chief Strategic Officer, replaces Brad Mills, who analysts have blamed for Lonmin's recent problems. The change of the chief executive at such a crucial stage in Lonmin's bid to stay independent is a sign that the world's third largest platinum miner has in effect resigned itself to a takeover by Xstrata. Lonmin's board was confident about the new chief executive, stating that the "board has an ongoing duty to manage Lonmin in the best interests of shareholders. We have decided the time is right to appoint a new chief executive officer and we believe Ian is the right person to lead the group."

Xstrata unveiled a proposed takeover offer of £33(approx US$59) per share worth US$10 billion in August, but has been set a deadline by the Takeover panel that it must say by Thursday whether it will make a formal bid. Under takeover rules Xstrata cannot offer less than its existing outline offer.  So far, Lonmin had rejected the Xstrata approach, claiming that the £5 billion offer undervalues its platinum mines in South Africa.

Xstrata has reportedly approached 22 banks to make commitments for a US$15 bl loan to both fund the Lonmin takeover and refinance existing debt. Xstrata theorized to be pausing due to the collapse in the platinum price, platinum is down 30 per cent since Xstrata proposed the offer. Shares in Lonmin closed down 14.62 per cent at £21.08 (approx US$38) while Xstrata's stock was down by 17.47 per cent at £15.78 (approx US$28.6).

Platinum Group Metals ^[6] (TSX.PTM) declared on September 26 the non brokered private placement of 4,910,470 common shares at a price of CD$1.55 (approx US$1.49) per share to raise gross proceeds of CD$7.61ml. The net proceeds of the placement will fund items included in the feasibility study on the Western Bushveld Joint Venture and general working capital.