Platinum was once declared by King Louis XV of France to be the only metal fit for a king, according to The Telegraph (London). Recent demand for precious metals as an inflation hedge has sent the prices of gold and silver soaring. The price of platinum—among the most expensive of the precious metals—is also on the rise.
Analysts at Johnson Matthey, the world’s leading authority on platinum group metals, predicted in May that platinum would spend the year trading between $1,200 and $1,400, but in early December, platinum was trading at $1,470, according to Kitco. Platinum prices climbed 31 percent in 2007 through early November, according to Bloomberg.com.
Additionally, platinum may be the leading inflation indicator. Platinum leads inflation by 16 months, while silver and gold lead inflation by 14 and 12 months, respectively, according to a 2005 study by Wainwright Economics, a Boston investment research firm.
Platinum, used in products ranging from wedding bands to catalytic converters, hit a record high of $1,486 in late November after a worker’s strike in South Africa, according to Reuters South Africa.
South Africa produced 80 percent of the world’s platinum last year, according to Resource Investor. Johnson Matthey noted in their 2007 Interim Report, released Nov. 13, that production in South Africa was lower than expected at all three major producers because of a combination of geological and safety problems, industrial unrest and processing bottlenecks. Lack of supply from South Africa may drive prices up.
Platinum is best known for its use in jewelry, but it is vital to many industries
But it is demand from the automotive industry that is likely to cause the largest fluctuations in platinum’s price. Platinum’s use in catalytic converters accounts for 62 percent of all platinum bought last year, according to Johnson Matthey. The demand for platinum in this kind of application began in the 1970s with clean air legislation and continues today with stricter emissions standards, according to the United Nations Conference on Trade and Development.
Palladium, another platinum group metal, can be used in catalytic converters, but platinum works better, particularly in diesel engines. Platinum works better at lower temperatures and sulfur does not collect on platinum as quickly as it does on palladium.
Analysts expect total U.S. automobile sales for November to hit a seasonally adjusted annual rate between 15.7 million and 15.9 million vehicles, down from the 16.1 million reported in November 2006, according to Reuters. When the U.S. economy suffers, the demand for automobiles suffers, which causes the demand for platinum to drop.
Light vehicle sales were down 2 percent and domestic production fell 6.3 percent in North America between March 2006 and March 2007, according to Johnson Matthey's 2007 annual report. Worldwide demand for platinum to be used for catalytic converters is up, though, and may mitigate the issues with the U.S. automobile manufacturing market, according to the report.
Global light duty vehicle sales increased 2.8 percent to 66.3 million between March 2006 and March 2007, according to the report. Car production rose by 3.1 percent, with most production growth in Asia, which was up 9.5 percent from 2006, according to the report.
Within Asia, sales grew 21 percent in China and 23 percent in India from 2006 to 2007, according to Johnson Matthey. Total European sales were up 3.4 percent, with all growth coming from Eastern Europe, which showed a 16 percent increase in sales; Russian sales increased 30 percent during the year, according to Johnson Matthey.
“Although industry experts are predicting a 25 percent fall in truck sales in North America in 2007, all new trucks sold will need to meet the emissions legislation, which will provide the opportunity for significant new business,” according to Johnson Matthey's 2007 annual report. “Over the next decade we expect that most of the growth in world car production will take place in the Asian region.”
It is uncertain whether the slowed production of platinum because of mining strikes and other factors will affect the price of platinum more than the increased demand from the automotive sector. However, according to Johnson Matthey’s 2007 annual report, platinum could rise to as much as $1,575 an ounce in the next six months. Investors interested in using platinum to diversify their portfolio should stay informed about platinum mining in South Africa and auto manufacturers in China, India and Detroit.
