Investor Interest Fuels Platinum Group Metals Higher

There are many sources of market information, but the need is to filter out the vast majority that are self-serving or less than complete. This is one of the toughest jobs that the retail participant in capital markets faces. Where does one look?

In this regard, the CPM Group has released its annual Platinum Group Metals Yearbook, which I recommend. The report discusses 2007-08 market trends and projections for the platinum group and provides detailed statistics on mine production, total supply, fabrication demand, exchange data, and inventories. Adam Crown, Exec. VP, and friend, hosts annual hospitality functions for a great many of the leading silver and platinum producers at various mining shows like the PDAC. Jock can tell you that it’s a good opportunity for a couple hours to move about the room to meet the various CEOs and supporting cast.

The report, published since 1981, is regarded the most accurate and reliable source of platinum group metals market supply and demand data and information. Here are the key points:

The three major platinum group metals’ prices, platinum, palladium, and rhodium, continued to rise in 2007, after having risen in 2006. Prices continued their ascent in early 2008. A combination of strong fabrication demand worldwide, declining supplies, and a surge in investor interest all fueled platinum group metals prices higher. Platinum prices rose to record levels in 2006, 2007, and again in early 2008. Palladium prices rose to multi-year highs in early 2008, while rhodium prices have been reaching ever-higher record levels since the second half of 2007. Strong economic growth in developing nations has spurred strong fabrication demand. This has offset slower economic growth in developed nations. Even with slower overall economic growth in the industrialized nations, demand for the major PGMs continues to rise in most of these markets, countries, and regions.

Rising auto production worldwide and demand for platinum group metals in auto catalysts continues to put pressure on these markets’ supply and demand balance. Emission standards continue to tighten worldwide. Disruptions in platinum group metals production in South Africa reduced the amount of total supplies available in 2007, the report explains. These disruptions continued in early 2008, with power shortages in South Africa. The country now grapples with a tight electrical power supply and demand balance. Rising prices have been attracting increased investment in platinum group metals. In addition to already strong investment demand from hedge funds and institutional investors over the past couple of years, there were several platinum and palladium investment vehicles set up to provide further avenues for rising investor interest. The platinum group metals markets are undergoing dynamic changes; as a result prices are projected to remain at high levels as these developments unfold. These are some of the major themes covered in the research and analysis in the CPM Platinum Group Metals Yearbook 2008, released today by CPM Group.

Platinum prices averaged a record $1,314.46 in 2007, surpassing the previous record average price of $1,146.94 in 2006 by 14.6%. During the first five months of this year prices averaged $1,946.13. This was up a sharp 56.9% from the similar period in 2007. In early March prices reached a record intraday high of $2,308.80.

Total platinum supply declined to 7,418,000 ounces in 2007, down 4.6% from a record 7,779,000 ounces supplied in 2006. The bulk of the decline occurred in South African mine production. A series of labor disruptions, accidents, mechanical and operational problems all led to reduced mine output from South Africa. Power shortage problems this year in addition to the issues already facing platinum group metals operations in South Africa are expected to weigh on platinum mine output this year again. Total supply could decline 1.4% this year to 7,317,000 ounces. Total mine output, including South Africa, declined 6.6% to 5,708,000 ounces last year and could decline an additional 2.7% to 5,552,000 ounces this year. Secondary supply increased for the 16th consecutive year in 2007 and is projected to expand again in 2008. Russian exports of platinum meanwhile are projected to decline slightly this year again.

Total fabrication demand rose 0.8% to 7,060,000 ounces in 2007 from 7,002,000 ounces in 2006. High platinum prices affected demand in some sectors, such as jewelry and electronics, but was offset by relatively inelastic demand in other sectors, in particular the automotive industry. This year total fabrication demand could rise 3.2% to reach 7,285,000 ounces. Demand for platinum in the auto industry, the largest sector of end-use, is projected to remain strong this year, due mostly to strong demand from developing nations. Jewelry demand could decline again this year, while Chinese demand and other uses are projected to increase slightly.

The surplus was reduced by more than half last year to 358,000 ounces in 2007 from 777,000 ounces in 2006. Surpluses are measured as total new supply less fabrication demand, without counting investment demand for physical platinum as part of fabrication demand. The surplus is projected to decline even more sharply this year to a statistically insignificant 32,000 ounces.

Palladium prices climbed to an average of $359.21 in 2007, up 10.7% from the $324.38 averaged in 2006. During the first quarter of this year prices spiked to $600 on an intraday basis, but have since come off. Palladium prices averaged $448.80 through May of this year, up 25.7% from the same period last year.

Total palladium supply declined to 8,509,000 ounces in 2007, down 0.8% from 8,575,000 ounces in 2006. This year total supply is projected to contract further to 8,433,000 ounces. Last year the bulk of the decline came from lower mine output in South Africa. This year lower mine output from South Africa and reduced Russian exports are projected to push total supply lower. Secondary supply surged 13.7% last year and could increase 5.0% this year.

Total fabrication demand rose to 7,960,000 ounces last year, up 7.0% from 7,442,000 ounces in 2006. Demand from the auto sector continued to increase last year, rising 6.2%. Palladium demand in electronics, dental, and other uses also increased, as well as Chinese demand. This year total fabrication demand could rise 5.2% to 8,378,000 ounces. Automotive demand is projected to increase 7.2%. Palladium use in all of the other major sectors is also projected to increase.

The net surplus in the palladium market is projected to decline to 56,000 ounces this year, down sharply from 548,000 ounces in 2007, and just a fraction of 1,133,000 ounces in 2006.

Rhodium prices averaged a record $6,051 in 2007. This was up 38.8% from the previous average record price of $4,359 in 2006. The Platinum Group Metals Yearbook uses Metals Week New York Dealer prices. Rhodium prices have continued to climb, averaging $8,493 during the first five months of this year.

Last year total rhodium supply declined to 949,019 ounces, down 2.4% from 972,379 ounces in 2006. As in the platinum and palladium markets, the bulk of the decline came from lower South African mine output. This year total supply could decline 1.3% to 937,101 ounces, mainly due again to lower mine output from South Africa.

 

Fabrication demand declined 2.0% to 1,072,850 ounces last year. High prices tempered rhodium demand in all major sectors last year. This year fabrication demand could rise 3.4% to 1,109,550 ounces. Demand from the automotive sector is expected to increase 4.4% to 975,000 ounces, from 934,350 ounces used last year.

The rhodium market deficit is projected to widen this year to 172,449 ounces. This is up from a deficit of 123,831 ounces last year.

Since 1971, the CPM Group has produced annual Yearbooks on both gold and silver as well as platinum group metals. Since 2006 these reports have been published by John Wiley & Sons, and have been marketed through Wiley’s network of book sellers as well as by CPM Group. This year’s reviews cost $75.00 plus S&H, which makes them readily available to individual investors as well as institutions, corporations, and governments.

The 2008 Platinum Group Metals Yearbook is sponsored by 15 companies and organizations. These companies are A-1 Specialized Services and Supplies, Inc., Commodities Now, Eastern Platinum Limited (ELRFF.PK), Franconia Minerals Corporation (FRALF.PK), Institute of Scrap Recycling Industries, Inc., Kitco Inc., Mustang Minerals Corp., Noah Financial Innovation, Norilsk Nickel, North American Palladium Ltd. (PAL), Platinum Australia Limited (PTNMF.PK), Platmin Ltd. (PLNLF.PK), Prospector Investment & Exploration News, Umicore, and W.C. Heraeus GmbH & Co. KG.

CPM Group began in the early 1970s as the Research Department of J. Aron and Company, one of the world’s largest and most successful commodities trading companies. In 1986 CPM Group spun off from Goldman Sachs, which had acquired J. Aron in 1981, to set up as an independent company that provides a range of consulting and research services to companies, investors, governments, and others with large financial exposure to commodities. I’d like to see all Wall Street research spun off in a similar way.

In addition to this Platinum Yearbook, the CPM Group released its annual Gold Yearbook on Tuesday, 11 March. CPM Group also released its annual Silver Yearbook on Tuesday, 29 April.

CPM Group’s Platinum Group Metals Yearbook 2008. Available in printed and/or PDF format. US$75.00. Available from CPM Group. 30 Broad St., 37th Floor. New York, NY 10004 Tel. [phone]. Fax: [phone]. email: [e-mail]. The report may be ordered and downloaded online at www.cpmgroup.com.

Comments

[OJO Zafado]

I must be uninformed. The symbol prompt that brought me to this blog was DBP. DBP as I understood it was a mix of Gold and Silver futures investments. It does not directly own bullion? To my knowledge the only WIDELY traded US investments in Platinum are the ETNs PTM and PTY. The PTM being a nearly pure platinum participation ETN, while the PTY emulates the DBP while also carrying positions in other precious metals such as the platinum group. Widely traded may be an exaggeration but they do provide a vehicle. The mutual fund UNWPX also has some overweight positions in Platinum mines. Unfortunately most of these investments are in South Africa. Political correctness precludes any seriously critical opinions of investing in So Africa. In the real world no matter what the reason, we see the former Rhodesia/now the beautifully euphonious Zimbabwe achieving the economic "miracle" of Haiti. South Africa is on this same road to economic ruin. Zimbabwe did not go genocidal and become rife with famine over night. We must allow for time to work to get the same results in So Africa. For this reason investments in So African platinum may in the short run be profitable, while in the long term be quite dangerous. Platinum on a fiat currency to size/weight ratio is indeed the easiest of the bullion coins to physically own and store. You pay a premium for that but if you are a long term investor it may be worth it. Unlike most exchange traded investments, bullion coins have the advantage of not showing up on your income taxes or lists of assets for estate planning and long term care provisions under Medicaid. If only Eliot had realized that gold bullion coins "come " in "all sizes" like the +1 oz Austrian or in 1, 1/2, 1/4 and even 1/10 ounce versions. If top world models prefer being paid in Euros, it is "hard" to imagine a courtesan not accepting something like a few American Buffalo.