Mine expansions in South Africa could see the platinum market moving further into surplus in 2007, precious metals researcher Johnson Matthey said on Monday.
Last year, the industry moved into its first surplus in seven years when global supply outstripped global demand by 10 000 oz.
In the 'Platinum 2007' report, which was released on Monday, Johnson Matthey said that mine expansions in South Africa pushed supply to a record of 6,785-million ounces and the processing of the backlog of material at Lonmin should progressively raise supplies in 2007.
“If the expansions proceed according to schedule, sales of South African platinum could rise by more than 5% from 2006, a pace which would outstrip the growth in demand,” Johnson Matthey stated. The group warned, however, that any delays or interruptions in mining, such as industrial disputes would mean that supply and demand could be much more finely balanced.
The South African mining industry had recently been hit by several labour disputes, with production interruptions occurring at African Rainbow Mineral's and Anglo Platinum’s Modikwa mine, a Northam Platinum mine, as well as two Aquarius Platinum mines.
The platinum review stated that Russian exports were expected to fall slightly in 2007, but it said that the rising South African output was expected to offset the trend.
This comes as the Russian government had put new legislation in place early this year, abolishing export quotas for platinum group metals. During the early part of the year, there were no platinum shipments from the country and Johnson Matthey said that it was uncertain when shipments might be resumed.
“Provided that the South African producers meet their production targets, and that the hiatus in Russian shipments is resolved, we expect the platinum market to be in surplus in 2007, but with particular tightness in the first half of the year,” the firm said.
ETFs to boost platinum price
Johnson Matthey said that the launch of an exchange-traded fund (ETF) earlier this year would apply further upward pressure to the platinum price.
“We believe the platinum price could reach $1 400 over the next six months,” it stated.
The report added that the price could rise further and that it could show greater volatility if further significant supply disruptions occur or if fund positions were to change markedly.
Johnson Matthey also warned that fund activities could have a negative effect when they turn bearish towards commodities as a result of external factors, such as the growing problems in the US housing market, which could lead to a reduction in US consumers’ savings rates.
The group noted, however, that it did not see the gold price falling below the $1 200 mark over the next six months, as consumer and speculative purchasing would provide renewed support.