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Struggling economies push platinum lower

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum has been on a steady downgrade, falling since trading at a record $2,301.50 an ounce in March.

The metal was at $821 an ounce in London on Tuesday, platinum futures for January delivery tumbled $24.50, or 2.7 per cent, to $820.60 an ounce on the Nymex ^[2]. Palladium ^[3], often a mirror for platinum on the markets rose $1.05, or 0.5 per cent, to $217.70 an ounce. A poor economic outlook eroding demand for jewelry and cars is causing the metal to flop.  Miners who banked on high platinum prices are struggling to adjust business operations in light of the new lows.

Platinum refiner Johnson Matthey expects the price of platinum to range between $700/oz and $1,400/oz in the next six months, with the outlook for the market more uncertain than it has been for many years. "The dramatic fall in the platinum price in the third quarter of the year could yet pose significant challenges to the primary producers and make expansion less attractive," Johnson Matthey said. Looking forward, Matthey said it expected that most major national economies would suffer a recession ^[4], or slowdown in growth, and this would impact industrial demand for the metal.

Company news

Lonmin Plc ^[5], the world's lowest cost PGM producer, will cut at least 50,000 ounces of annual output, halt expansion and eliminate a third of jobs at its London headquarters due to the metal's plunge. Lonmin will suspend open-pit mining at Marikana in South Africa by December 31 and may close its only other fully owned mine, Limpopo. All Development projects have also been put on hold. Due to the shedding of 73 per cent of share value in 2008, the company is currently valued at US $2 billion. Lonmin is not holding its breath for a price revival of the metal; in fact the company does not anticipate any comeback in the metal's price until 2010. For now, the company is operating in "survival mode". Lonmin will move its business development and exploration activities to South Africa from London, where the headcount will drop to 22 from 35.

Zimbabwe is forecasted to lift platinum output this year, despite regional political crisis and global economic malaise. The country holds the second largest reserves of platinum after South Africa, and is expected to lift platinum production by 5.9 per cent this year to 180,000 ounces, outperforming its earlier predictions.

Platinum demand by jewelry makers ^[6] in China is forecast to fall 22 per cent to 610,000 ounces in 2008. Even though platinum is currently trading at lows, high prices in the first quarter of 2008 dented demand. China is the world's main consumer of platinum and palladium jewellery; Chinese jewellery manufacturers are forecast to purchase 610,000 ounces of new platinum metal in 2008, a fall of 21.8 per cent from the previous year. The high prices witnessed in the first quarter have driven the use of large amounts of recycled metal and have also impacted upon manufacturing volumes. Very large amounts of old, second hand jewelry have been returned by consumers for recycling, offsetting manufacturers' purchases of new metal. The flow of scrap material peaked in the first half of 2008 and has since decreased due to lower prices. Therefore, demand is likely to rise in the future despite the fact that for the end of 2008  demand from the Japanese jewelry industry for the whole year was predicted to fall to 40,000 ounces in 2008 from 180,000 ounces in 2007.