Platinum UBS Long ETF (PTM)

[frenchee]

Platinum Gets Set for Rebound
By ALLEN SYKORA

DJ-AIG Commodity Indexes

PLATINUM APPEARS TO HAVE JUMPED the starting gun in 2009. As a result, it may end up back at the starting blocks. But by year end, the price of this once high-flying metal could pick up speed again.

"In the second half, we could see an improving car industry," says Sterling Smith, vice president with Chicago brokerage FuturesOne. The metal is widely used in automobile catalytic converters.

Nearby platinum on the New York Mercantile Exchange hit a record $2,308.80 an ounce last March before tumbling with other commodities, and was additionally pressured by the unwinding auto industry. Platinum bottomed at $761.80 in October; most-active April platinum ended Dec. 31 at $941.50 an ounce and hit $1,011.60 on Jan. 7. The contract settled Friday at $953.30 an ounce, down 5.2% for the week as the weak economic fundamentals reasserted themselves. Still, it remains 1.3% higher since Dec. 31.

Although industrial demand remained weak, platinum poked above $1,000 again earlier this month due to jewelry-related buying ahead of the Chinese New Year, new jewelry lines in India and investor demand. "But with that said, we see a period of weakness over the first half of the year," says John Mothersole, senior economist with international consultant IHS Global Insight. "That suggests the bounce in prices we've seen might be a little bit premature."

The crumpled car sector means there's still drag on demand, and financially strapped auto producers may be reluctant to build inventory. They might even dump supplies, says Bart Melek, Toronto-based commodities strategist with BMO Capital Markets. The weak economy could also dent jewelry demand in Western nations. This has Melek and Mothersole looking for a global surplus in '09. Beyond the first half of 2009, the anticipated U.S. stimulus should begin to boost demand, as should efforts in the U.S. and Canada to free up credit for car loans, Melek says.

New York-based commodities-research firm CPM Group sees prices around $850 to $900 much of the first three quarters, but then averaging $1,050 to $1,060 in the fourth and perhaps $1,300 in 2010, says analyst Rohit Savant. BMO looks for a first-half average of $938, then $975 in the second. More conservatively, Mothersole of IHS forecasts a trough of $800 in the second or third quarter before a recovery, with the average not moving back above $1,200 an ounce until 2011 to 2012.
[DJAIG chart]

Still, Ron Coby, co-founder of Coby Lamson Capital Management, looks for a kind of bear-market rally, with platinum perhaps bouncing to $1,500 on a technical correction in 2009, he says, before all markets re-test their lows by year end.

On the supply side, FuturesOne's Smith cautions, platinum is a small market, vulnerable to disruptions such as strikes or natural disasters. (In South Africa, which provides 75% to 80% of the world's primary supply, electrical shortages curtailed mining activity last year.) In fact, Mothersole says that prices around $1,000 are already around the marginal operating cost, defined as the average cash operating cost for the upper quartile of mines. He adds that these costs are likely to slowly rise -- reinforcing the likelihood of a price rally.

NYMEX CRUDE-OIL FUTURES were chilled by the continuing bearish outlook for the economy. The February contract fell 10.58% on the week, to $36.51 a barrel.