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BS: Platinum sinking as global recession looms
Setback for prospects hit as car manufacturers cut production and a strengthening dollar takes the shine off precious metals

Markets Editor

PLATINUM continued to tumble yesterday with the precious metal trading at a three-year low of $928,80/oz as a global recession looked likelier.

The outlook for platinum demand was hit by car makers cutting back on production.

The strengthening US dollar also helped strip the lustre off precious metals, such as gold and platinum, which are usually seen as a hedge against a weak dollar.

A stronger dollar makes dollar-priced metals more expensive for other currency holders.

By late afternoon, platinum had recovered slightly to $990/oz. Gold had also recovered slightly from its morning lows.

So far this year, platinum has lost 35% of its value, while the JSE’s platinum index has fallen 44%. In May, platinum traded as high as $2200/oz, due partly to production disruptions as a result of SA’s electricity crisis.

“Prices continue to fall fast as auto sales fall,” said John Meyer, an analyst at Fairfax Securities in London. “The negative outlook from the Paris Auto Show has not helped sales. EFT sales are visible, and may create the appearance of a supply surplus this year.”

Metals group Heraeus Metallhandels said yesterday the worst might not be over with platinum traders “nervously” awaiting the car sales figures. US car sales figures for last month showed a significant drop in sales, with Ford falling 34%, Chrysler 33% and Toyota 32%. Heraeus analyst Wolfgang Wrzesniok-Roßbach said news from Germany and other European countries was expected to be similarly negative. China had also reported a slowdown.

The drop in demand from China was particularly worrying as it had been growing strongly.

Toyota said last week it would cut production in China to adjust to the change. The Indian market was also slowing, he said. Honda said last week it was deferring plans for a second plant in India by at least a year. Falling car sales in the subcontinent were blamed on rising interest rates and the highest inflation in 16 years.

“In view of the continuing financial and housing market crisis one can hardly expect good news from across the Atlantic in the coming months,” Wrzesniok-Roßbach said.

While short- and medium-term factors influencing platinum demand were negative, Heraeus said a recent conference of platinum producers and dealers expected the price to average $1488/oz in November next year as industry demand recovered with the introduction of stringent automotive emission regulations. Similarly, gold’s short-term outlook was also uncertain.

While the price of gold gained 3% this year, the metal’s price has fallen sharply from the $1003/oz at which it traded in March.

“Speculators as well as the longer-term oriented investors, given the need for cash, will most likely continue to sell the metal,” said Wrzesniok-Roßbach. He said it was difficult to forecast the metal’s direction in the short term.

“On one side, demand for bars is expected to remain robust whereas on the other side jewellery demand should suffer in view of the global recessionary fears,” he said.

“Speculators as well as the longer-term oriented investors, given the need for cash, will most likely continue to sell the metal.”