Platinum outlook comfortably above $2000/ounce despite macro concerns

The Fortis/VM Group gives a platinum outlook that jostles with supply constraints and demand concerns.

JOHANNESBURG - 

The Fortis metals monthly says the outlook for platinum is comfortably above $2,000/ounce on new investment demand, higher capital costs stemming from power generators and a looming Cosatu strike in South Africa.

The Fortis/VM Group said in its monthly metals report more mining companies were likely to follow Eastern Platinum in installing their own diesel power generators that will add to their capital costs and could involve "new problems" given the high cost of crude oil.

Another factor that could support the platinum price in the near term is the fact that South Africa's umbrella trade union Cosatu has called for a general strike on 6 August to protest against job cuts linked to the power crisis in the country.

Platinum did not receive the same price support as palladium during June, partly due to concerns over demand growth as diesel vehicles now have an obvious disadvantage compared to gasoline vehicles. This comes as the diesel price is now at a significant premium to gasoline which could lead to a steady fall in diesel passenger car sales in the longer term, said the report.

Fortis said supply-side concerns stemming from South Africa's power situation have taken a back seat amidst macro economic concerns, but they have not disappeared. If a power supply crunch is averted in August, the medium term outlook still appears grim.

Taking a longer view, platinum will continue to remain well supported for the rest of the year due to the ongoing difficulties facing PGM producers in South Africa.

Although both platinum and palladium are at risk of a downturn in the global economy since they are heavily dependent on automobile sales and jewellery demand, platinum prices will likely remain strong as long as Eskom runs the risk of being unable to meet growing power demand.

Fortis is of the view that even if Eskom secured the $45bn financing required to build new power stations, the long-term outlook for electricity in South Africa remains bleak for at least the next five years.

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