Leia Michele Toovey- Exclusive for Platinum Investing News

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Platinum hits a low on weakening US auto market

Platinum plunged to its lowest point in over seven months following concerns of an economic slowdown reining in its supply.

All precious metals were impacted this week as crude oil price dropped and the US dollar gained somewhat against the euro and the pound. In the past four months, the price of platinum has dropped more than 30 per cent from its record $2301.50 per ounce in March to its current level of about $1470 per ounce. The current global shortage of platinum is not being reflected in the low price of the precious metal.

According to Platinum Australia ^[2] Managing Director John Lewins, the platinum market last year was in deficit of 500,000 ounces with a demand of seven million ounces. Platinum producers Impala Platinum Ltd, Aquarius Platinum Ltd, and Lonmin are all expected to post lower production this year as power supply problems in the world's richest platinum-producing nation, South Africa, is making it costly to mine the precious metal. By constricting the already tight supply, an even higher deficit is possible in the current year.

Significantly increased demand is expected from China in the coming years. Its industrial consumption of platinum lagged behind other nations. Platinum is a key, non-substitute ingredient in catalytic converters, part of a car's emissions control system. But, with more cars taking to China's roads, the platinum market remained in deficit. Platinum prices have been driven downwards largely by the poor economic sentiments in the US and weaker vehicle sales. The catalytic converter in a diesel car comprised as high as 75 per cent platinum - gas powered ladium could be used as a platinum substitute. With crippling energy costs, more fuel efficient diesel vehicle sales are expected to be manufactured. Last calendar year, in China, the production of vehicles went up by 26 per cent, making it the country with the fastest growing vehicle manufacturing process in the world. In Beijing and Shanghai, they have introduced a Clean Air Act, recently. This is expected to be extended to the rest of China later this month. Cleaner air requires more catalytic converters, which translates into more platinum. China is producing virtually no light diesel vehicles at the moment, but with high gas prices, the 30 per cent more fuel efficient vehicles have a strong potential market in the region. More diesel vehicles mean more platinum, and this would extend positive support to the metal's price.

On the back of a successful year, South African owned Wesizwe Platinum (WEZJ: J), has transformed itself from a platinum producer to an exploration company. Robert Raiy, the company's acting Chairman announced Tuesday that a feasibility study on the flagship Frischgewaagd-Ledig project was now complete. This study comes in a year ahead of schedule, which opens up the target date of production for 2011.The estimated life of the Frischgewaagd-Ledig project is 35 years, producing an average of 350,000 ounces per annum of platinum group elements by 2016. The project is expected to have an underground mine and a surface concentrator plant.

Wesizwe has planned for self-generation of power at the mine, with the generators producing some 10 megawatts (MW) in the construction phase, and rising to 65 MW by 2016 at full output. The self-generation was necessary following the power shortage crisis that engulfed South Africa since the start of the year, and led to the shutting of mines for five days as the power system faced a near-collapse. Since then, mines have had to rely on around 90 per cent of the normal power requirements, cutting output and putting long term expansion plans in jeopardy. Wesizwe has raised $64.37 million to fund the project construction phases until 2009, and further funds will be raised through debt and equity.

Lonmin has rejected Xstrata's $10 billion bid ^[3] to buy the platinum producer. Xstrata raised the funds for the bid with the help of the Royal Bank of Scotland, and the Deutsche bank. Lonmin has been having a poor year, grappling with operational problems and power cuts in South Africa. For the fiscal year ending September, Lonmin has cut it's sales targets three times, revising down from 900,000 to 725,000 tonnes. X-strata is interested in struggling Lonmin as they set their sites on diversification away from industrial metals such as copper. Lonmin turned down the bid stating that it undervalued the business.