Demand for autos must increase in order for platinum to rebound

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum rebounded early in 2009, and came back into the four digits, the metal’s highest value in over 12 weeks.

In 2008, the metal went on a wild ride, hitting a peak of $2,290 per ounce, and then came crashing down to a three digit value. Despite the metal starting the year on a good note, RBC Capital Markets has cut its platinum price forecast for the next two years. Platinum was previously predicted to be valued at $1150 per ounce in 2009.  The 2010 forecast is of $1300 per ounce.  The re-evaluation is for the metal to be worth $1100 per ounce in 2009, and $1200 per ounce in 2010.

Platinum for immediate delivery climbed as much as US$34.50, or 3.6 per cent to US$1,002.50 an ounce and traded at US$994.25. It has gained in the past five sessions and is up 6.4 per cent this year. In the near term analysts claim that the metal may extend its rally toward US$1,040-$1,085 an ounce.

Arguably, platinum was the most oversold metal commodity in the market collapse.  Platinum’s early 2009 rebound is not a reflection of changing fundamentals; it is a combination of the reset of the commodities indexes, and the sentiment that more output cutbacks are on there way.  Much of the world’s platinum production is uneconomic at current price levels and many mines are starving for higher PGM prices to survive the current economic downturn. In the short and long term, in order for platinum prices to increase, auto demand has to rise.  This will take some time. Although the credit crunch has loosened, a high level of job insecurity at this time is likely to trump increased access to a loan. Fear will prevent buyers from acquiring new cars, or at least delay their decision to do so, until the economic environment improves. The lack of demand for autos at this time is likely to push down the prices of platinum in the near future.

When it comes to the auto industry, in the near future the amount of platinum used in car manufacturing will likely decline.  This is a result of Japan Motor Corp announcing that it will be rolling out a new technology that will reduce the amount of platinum used in catalytic convertors.  The new technology will be used on the company’s Mazda 3 model, and will reduce the amount of platinum required 70 per cent.  In the future, Mazda may roll out this technology globally.

Company news

Impala Platinum Holdings Ltd., the world’s second-largest producer of the metal, said it is still in takeover talks with two rivals in South Africa. Due diligence of the acquisition of Mvelaphanda Resources Ltd. and Northam Platinum Ltd. is complete and Impala is looking at the relative valuations. While the 39 per cent drop in the London platinum price last year made takeovers cheaper, tightening credit saw planned deals being abandoned, including Xstrata Plc’s bid for Lonmin Plc.

Investec Securities has cut its earning target for Aquarius Platinum Ltd., by 70 per cent. Investec Securities expects output to be lower next year than previously estimated after the Everest mine was suspended. If platinum prices fail to recover, the company will be operating at loss in 2009. In order to be cash flow positive, Platinum has to sell above $1000 an ounce.

Citigroup has downgraded Johnson Matthey from “buy” to “hold”.  However, they maintained their earnings per share forecast. The reason for the downgrade is that Citigroup believes the global demand outlook for platinum products remains uncertain.

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