Platinum Price Hits Five-and-a-Half-Year Low — What’s Next?

- February 23rd, 2015

The precious metal’s price fell to a five-and-a-half-year low on Friday, and the platinum-gold spread is at its highest level in almost two years. Still, experts believe there could be brightness ahead for platinum in 2015.

Platinum Price Hits Five-and-a-Half-Year Low — What's Next?

Platinum has faced some tough times in recent years, with long-term strikes and strong global auto sales doing little to alleviate the situation.

With the precious metal’s price falling to a five-and-a-half-year low on Friday and the platinum-gold spread at its highest level in almost two years, it’s hard to say what might bring the price back to what it used to be. Still, experts believe there could be brightness ahead for platinum in 2015.

Car concerns driving demand down

Despite that optimism, there are almost definitely headwinds in platinum’s future. According to Reuters, the metal was brought down Friday by a variety of temporary circumstances, including turmoil in the currency bloc and the arrival of the Lunar New Year; however, longer term other issues may prove troublesome for platinum.

For instance, recent health research surrounding diesel cars shows that diesel engines, which were previously considered more environmentally friendly then their gasoline-driven counterparts, actually release higher levels of other pollutants like nitrogen oxides. Mining Weekly notes that these findings led Paris to announce a plan to ban diesel cars by 2020 to reduce air pollution; furthermore, the mayor of London is looking at upping costs for anyone driving diesel cars in congested areas.

Those moves will directly affect platinum demand because catalysts in diesel cars use about four times more platinum than gasoline cars. And while the diesel engines could be replaced with direct-injection gasoline cars, which still require a lot of platinum, the growing popularity of catalyst-free electric and hybrid cars will likely have a major effect on the market.

Increased jewelry imports could brighten market

That said, while demand for the white metal is wavering in certain European countries, increased demand for platinum jewelry in the United States could even the scales. According to calculations from Thomson Reuters GFMS, imports of platinum jewelry to the US increased by more than 60 percent in 2014 compared to the previous year. The country imported 1,156 kilograms of platinum jewelry that year, up from 719 kilograms in 2013, with 90 percent of the increase in total imports coming from France.

However, the increase in the US jewelry demand has been attributed to the steep decline of the euro, and with the currency’s future being heavily influenced by the extension of Greece’s bailout program, it’s hard to say how the euro will fare in the future.

Big suppliers remain confident in platinum’s future

The circumstances above make it clear that platinum’s future is uncertain, especially given that supply of the metal is slowly starting to build up again after last year’s five-month miners’ strike in South Africa. That said, Anglo American Platinum (OTCMKTS:AGPPY,JSE:AMS), the world’s largest producer of platinum, believes increasing demand and global depletion of stocks should aid prices. The company told Bloomberg last week that the metal is “well positioned” as above-ground stocks fell 48 percent in 2014 after three years of supply deficits.

“All indications suggest that platinum is in its strongest position since 2005,” Amplats told Bloomberg. “The cumulative oversupply from 2006 has been eliminated in the past three years, and signs point to demand increasing. This could also lead to an increase in the price for platinum and palladium.”

The company’s profits were greatly affected by the five-month strike, which cost the company US$730 million in operating profit and 424,000 equivalent ounces of refined platinum. Despite this loss and despite the fact that the metal’s average price for 2014 decreased by 6.8 percent from the previous year, to $1,385.02 an ounce, Amplats remains confident in its platinum forecast.

For now, however, the platinum price is sitting at $1,156 per troy ounce. Investors will no doubt be watching to see if it improves.

 

Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article. 

Related reading:

Platinum Outlook 2015: A Brighter New Year

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