A significant rise in price of platinum likely

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RBC Capital Markets

The price of platinum could see a stgnificant increase in the medium term as demand/supply pressures create the ultimate bottleneck, according to Leon Esterhuizen, analyst at RBC Capital Markets.

He says a continued increase in demand is driven by global need for catalytic converters to reduce emissions in car exhausts and by the jewellery industry.

"This growth averages 3.0-4.0 per cent per annum, and though it is expected to decline slightly as the current high prices eat into jewellery demand, it is expected to continue growing."

But producers are having a hard time due to power supply problems in South Africa, rampant escalation of costs and a massive shortage of skills, Mr Esterhuizen says.

"Recent attention in terms of investing potential in the metal - through exchange-traded funds poses a real threat in that it may continue to put the market in an ever growing deficit.

"Speculators would invest in platinum - buying the physical metal - in order to push the tightly balanced market into a demand rush.

"In the absence of any viable substitute, consumers would scramble to ensure supply at at any price, because cars cannot be sold without the catalytic converter.

"The risk of not having platinum could cause a run on the metal and hence push the price up much higher."

(FT Syndication Service)