Platinum Market Update (January 17, 2013)

January has seen platinum hit parity with gold, then reclaim its premium over the yellow metal.

This performance followed Anglo American Platinum’s (OTC Pink:AGPPY) announcement that it will be placing two of its South African mines — Khuseleka and Khomanani — on long-term care and maintenance. This action is expected to result in the loss of 14,000 mining jobs and a 400,000-ounce reduction of the company’s production profile.

The company also said that it plans to divest the Union mines at the right time in order to maximize value under different ownership.

The news drew a negative response from the South African government and prompted more labor strikes. The latter is a response that was widely expected in the event of any mine closures this year.

With costs rising and margins shrinking, it is considered likely that other companies may also have to mothball some South African operations.

Demand for platinum remains weak and its outlook is not particularly positive. While some have pointed to hints of improving economic conditions in the US and China as a reason for optimism, it must be remembered that these are not diesel-dominant markets. Platinum demand is largely dependent on the European auto market. Recent vehicle sales data from that region has been disappointing, with double-digit declines seen in Spain, France and Germany.

With platinum prices currently around $1,686, market participants will have their eyes on the $1,700 level, which platinum attempted — but failed — to breach on a number of occasions last year.