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Platinum Defies Forecasts to Slip Lower With Gold

By Charlotte Mathews

29 Apr 2008 at 11:00 AM GMT-04:00

http://www.resourceinvestor.com/pebble.asp?relid=42334

JOHANNESBURG (Business Day) -- Platinum tracked gold lower to record a 6% fall last week to $1,933/oz, despite various forecasts of a bigger platinum deficit this year than last year because of disruptions to South African production.

Weaker platinum and gold prices reflected a strengthening dollar on expectations that the U.S. Federal Reserve would stop cutting U.S. interest rates after positive first-quarter earnings reports from U.S. companies and positive labour market data.

Traders said there were signs that global market confidence was returning after fears of a financial meltdown with the U.S. subprime mortgage crisis.

Global risk aversion encourages investors to flee to safe-haven assets such as precious metals. But the prices of platinum and palladium are also determined by demand and supply, and operating difficulties in South Afriica, which accounts for 75% of global production, have caused price volatility this year.

Independent researchers GFMS said in its report on the platinum market last week that global production of platinum last year was 6.5 million ounces. Of this, South Africa accounted for 5.07 million ounces, a drop of 370,000 ounces on 2006 production. GFMS said Anglo Platinum [JSE:AMS], Lonmin [LSE:LMI] and Northam [JSE:NHM] had the biggest falls in production.

Anglo American [Nasdaq:AAUK; LSE:AAL; JSE:AGL] CEO Cynthia Carroll said last week subsidiary Angloplat's production could fall 150,000 ounces this year because of South Africa's power crisis. Last year Angloplat took the drastic step of halting production on a rolling basis at its flagship Rustenburg operations to retrain workers in safety after a series of fatalities.

A spike in fatalities last year at all South African mines, but especially deep-level gold and platinum, caused temporary stoppages.

In its quarterly review and production report for the period January 1 2008 to March 31, 2008, the company said that the “ongoing impact of the constrained electricity supply is expected to continue to have some impact on production and expansion projects throughout 2008.” The full extent of the impact could not be estimated “with reasonable accuracy at present.”

Anglo Platinum said equivalent refined platinum production from the mines managed by Anglo Platinum and its joint venture partners for the first quarter of 2008 were 517,500 ounces. This was a decrease of 19% when compared to the first quarter in 2007.

Last week, Lonmin, the world's third-biggest platinum producer, said March quarter platinum production was 17% down on the December quarter's, and cut its full-year production forecast to 775,000 ounces from 860,000 ounces. The group warned that it might not meet the revised target if there was a deterioration in electricity supply or more safety-related stoppages.

Aquarius Platinum reported platinum production fell 19% in the March quarter because of power supply and industrial relations issues as well as a switch to owner-operated mining at its Everest mine. It expected a fourth-quarter improvement and for the full year production would be similar to last year's, at 520,000-530,000 ounces.

Northam Platinum said in its interim results commentary in February it expected production in the second half to be similar to the first half's, when it dropped year on year by 16.5% to 150,755 ounces.

Impala Platinum [JSE:IMP] said at the interim stage it expected its production loss due to electricity cuts to be limited to 20,000 ounces this financial year.

Bloomberg reported Barclays Capital forecast platinum would average $2,100/oz in this quarter. It said South Africa's producers were still vulnerable to production disruptions caused by power outages and safety-related closures.

GFMS director Paul Walker said on Thursday he suspected demand for platinum from the automotive exhaust catalyst and jewellery sectors would fall more than expected this year in response to lower production. That would limit the market deficit, and perhaps even result in a surplus. With Sapa.