Byron Kennedy
Since the start of this week platinum shed a further $36 per oz to touch fresh 18-month lows of $435, a far cry from the $625 that the metal commanded back in April. That translates into a 30% devaluation in three months, although the majority of that pain was effected over the past three weeks.
While market commentators agree that platinum could continue its spectacular decline and breach $400 per oz soon, opinions differ over the metal’s longer-term prospects.
Macquarie Bank’s bullion specialist, Kamal Naqvi, says his long-term price target for platinum “remains $400”. He adds: “Short-term, I don’t see any obvious reason why the downside pressure should be alleviated. Demand still remains a clear negative for the market and I don’t see that changing.”
While platinum demand has been hurt by a slowing vehicle sector, a weakened electronics/IT industry and steady to softer jewellery sales, Naqvi says: “All in all, it’s not a good picture and I don’t see that turning around in the near-term.”
With no obvious production concerns, Naqvi says the metal’s supply remains “steady” and says that at around $400 per oz platinum miners are getting a “decent price”.
“It’s a price where producers can make a decent return on most capital investments and it’s not too high to discourage consumers, which provides a reasonable balance to the market.” Beyond $400 per oz “it starts to become more of a question mark so it is coming back towards something like normality”, says Naqvi.
While he doesn’t rule out a $100 per oz spike in platinum’s fortunes, Naqvi says this relies on ifs and buts like the “much hoped for fuel cell arrival or another major step forward in jewellery demand, maybe from India.
“They are all unproven in my view and we’re seeing some of the expectations that got away with themselves when prices were so high. Most of the expectations have been dampened down, forcing people to be a bit more conservative. Until I see signs or hopes of the demand picture improving, I retain a negative bias towards platinum and palladium for that matter.”
HSBC, on the other hand, is not convinced that the platinum group metal bubble has burst. Mining analyst Daniel Major says that after Tuesday’s revision the house view is that platinum will average $525 per oz next year, with long-term price targets of $475 per oz. That is substantially higher than current levels, although Major envisages that platinum will recover once the market’s buyers return. Says Major: “When buyers return it will force pressure back the other way. There’s no buying out there and of course you are going to have an overly depressed price.”
He adds: “Private investors are selling out of Japan and some short positions are being taken in New York. But it is very thin volume, so it’s having quite a volatile impact.” Major reckons that in light of a weak market platinum could drop below $400 per oz.