Supply shortage to boost prices

IN FOCUS / PLATINUM

The world's most precious metal, platinum is expected to have another lustrous year. Analysts predict that prices would stay in the range of $810-$850 per troy ounce.

Platinum prices had hit a high of $940 per troy ounce in April 2004 and subsequently cooled off.

In August, there was a brief spike in prices but it was dismissed as a speculative rally by analysts, with the dollar weakening and investors continuing to build long futures positions on TOCOM and NYMEX.

Supply of platinum is expected rise over the year, with output from South Africa and north American mines exceeding 2003 production levels.

However, Anglo Platinum and Impala Platinum Holdings, the world's largest producers of the metal, have stopped production at present. The mines were lying idle following a strike by their workers.

The strike pushed up prices last week, when it ended at roughly $868 on Friday. Platinum subsequently eased and was currently at a nine-week low ignoring the shortage caused by the strike.

In Russia, Norilsk Nickel is expected to sell the production facilities of its platinum group metals and could lead to uncertainty about supplies from that source.

The highest demand for platinum was from the auto industry where it is used as in exhaust gas catalytic converters.

The demand is being driven by increase in diesel car sales in both Europe and the US, as well as overall higher industrial demand.

Jewellery sector sales in China, the largest consumer market for platinum jewellery, has however dipped by roughly 15-20 per cent in the first half of 2004.

Analysts warned sales were likely to remain low in the coming months as well. This would squeeze profit margins and lead to price cutting among retailers and competition from the relatively cheaper white gold.

Luckily, platinum demand has started picking up in India.

According to Vaishali Banerjee, manager of Platinum Guild of India, the demand for platinum jewellery in India has been growing over the past few years.

"Platinum is roughly three and a half times more expensive than gold but this would make little difference to jewellers as it currently caters to high-end customers," she reasoned.

The guild started its operations in India with 10 retailers in 2000, and has currently incorporated 225 stores in 38 cities to retail platinum jewellery. Among these are six jewellery manufacturers and one chain maker.

On the industrial front, the demand and high prices of basic petrochemicals have resulted in the petroleum refining industry generally operating at high production rates with maximum capacity utilisation.

As a result, the demand for refining catalysts like platinum is also higher.