Amid increasing demand and a shortage of mine supply, the platinum spot price rose to an all-time record high. Check out the platinum spot price chart below...
The platinum spot price rose to a record $1,526.40 an ounce as supply disruptions in South Africa and growing industrial and investment demand pulled positively on the market.
Supply Shortages Support Platinum Spot Price
A shortage of mine supply has plagued the platinum market for the past few years. When it's all said and done, we expect a supply deficit of about 265,000 ounces in 2007, making this the seventh in the past eight years the market will record a shortfall. In 2006, there was a small mine surplus of about 65,000 ounces.
Most recently a string of deadly mining accidents in South Africa has slowed and in some cases even stopped production in South Africa, where 90% of the world's platinum is mined from only three major deposits. More than 180 South African workers have been killed this year in mine accidents, prompting nearly 250,000 workers to strike in a one-day protest earlier this month.
I expect these mining accidents to increase the already rising production costs as a result of tighter regulations within the South African mining industry. This will in turn continue to negatively effect platinum mine production in 2008 and beyond and positively support the platinum spot price.
Increasing Demand Supports Platinum Spot Price
Platinum demand is expected to increase by 195,000 ounces, or 2.9%, to a record 6.925 million ounces this year.
Most of the demand for platinum (about 50%) is industrial. Industrial usage of platinum is forecast to increase 40,000 ounces or 2.1% to 1.91 million ounces, with the automotive industry providing the main source of growth which uses platinum in catalytic converters. Increasing usage of fertilizers to meet rocketing biofuel demand has also increased platinum consumption in the catalyst gauzes used in nitric acid production.
Other platinum demand can be chalked up to jewelry manufacturing (about 40%) and investment (about 10%). This is unlike gold, where most of supply is used for jewelry (about 70%) and investment (about 20%).
I don't expect a significant decline in demand for the metal any time soon. In fact, I expect the exact opposite.
While the western world's industrial demand is a function of economic growth, which increases at a moderate rate, demand for platinum in countries with rapidly emerging economies--like China and India--is exploding.
It is well known that China has enjoyed the highest percent of annual economic growth of any nation in the world during the last ten years. And there doesn't seem to be any slowing in the foreseeable future. The country's platinum consumption has grown apace with its annual industrial production increases. I expect that China's future platinum demand alone will tax the world's current production capacity.
Platinum Spot Price in 2008
From what we're seeing today, I believe that the platinum spot price will continue to be strong in 2008. After a brief consolidation in the general metals market during the beginning of the year, I expect that we could see the platinum spot price as high as $1,700 or $1,800 in 2008.
Until next time,