News of hampered platinum production pushes futures prices higher

TradingPub Admin | January 15, 2013

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The relationship between news and the prices of commodity futures was once again illustrated on January 15, as platinum contracts pushed higher than those of gold for the first in close to one year amid announcements of supply changes.


Anglo American Platinum Ltd., which is the largest producer of the metal in the world, announced various changes that will curtail its production, according to a statement. The company, which is roughly 80 percent owned by Anglo American plc., stated that it plans to halt operations at various mines that it owns in South Africa.

The world's largest platinum producer indicated that the changes will reduce its annual production of the commodity by around 20 percent, or 400,000 troy ounces per year. In addition, the company will eliminate around 14,000 positions.

These announcements caused the price of platinum to surge, and the metal gained 3.1 percent to reach $1,702.50 a troy ounce, which was its highest point of the day, according to Dow Jones Newswires. This contract was trading $12 per ounce lower than spot gold at 09:40 GMT. This was the first time since March 2012 that platinum was more valuable than gold.

Industry challenges

The entire platinum industry has been facing myriad challenges. Prices for the metal started declining about a year ago, as the outlook for demand was soured by the lackluster global economy, the media outlet reports. Prices were able to recover in August, as they were supported by news that miners were striking in South Africa. Since this nation is responsible for roughly three-fourths of global platinum supply, its challenges pushed prices higher.

"Anglo Platinum will not be the last company to cut output," S.P. Angel analyst John Meyer stated, according to Reuters. "We would expect platinum miners to pull back by 25 to 30 percent, which is going to have a severe impact on prices."

The media outlet reports that platinum prices had already rallied on January 14, amid speculation surrounding the review. The premium that the metal is selling at when compared to gold was noted by many market experts.

European weakness

Analysts said that Europe's demand for the metal was still suffering.

"There has been a 6 percent reduction in European auto production in 2012 and we expect a further 5 percent contraction this year," Citigroup metals strategist David Wilson said, according to the news source.

He said that global supply of the metal can only change so much without generating price corrections, telling the media outlet that "you can take out 300,000 ounces of mine production, which tightens the market and puts into deficit, but then you also have got pretty high above ground stocks that can meet any shortfall. I think that there is not much scope for further growth and the platinum price can't push too much past $1,700."

Anglo situation

Anglo American Platinum noted how these industry challenges are impacting its operations, stating that demand is being undermined and that various factors are serving to put pressure on industry profitability - including need for capital, rising costs, mine depths and ore grades.

In the past, the company has communicated that several of its facilities have been operating at a loss as a result of the economic headwinds these locations faced, and that the situation was unsustainable.

Platinum price speculation

Analysts at UBS have warned that platinum futures could experience strong appreciation as a result of the constricted supply caused by operational suspension at facilities in South Africa, according to Dow Jones Newswires.

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