Showing posts with label Platinum price. Show all posts
Showing posts with label Platinum price. Show all posts

Thursday, October 4, 2012

Platinum expected to bounce back in 2013, metals stocks in surplus

Platinum and palladium were expected to regain some of its lustre in 2013 as rising production costs in South Africa, which produces about 70% of the global supply of platinum, looked set to push prices higher, French bank Natixis said in its latest quarterly metals review.

The ongoing labour unrest in the South African mining sector, which had disrupted platinum-group metals production and was spreading to other areas of the industry, had come at the worst possible time for producers who were this year struggling to cover their operating costs, the bank said.

Platinum, which in 2012 was at a two-year low at $1 550/oz, was expected to regain some of its sheen in 2013 to $1 700/oz, just under its 2011 price. Pushed higher by production constraints, palladium was expected to increase 15.6% in value to $740/oz, its highest price in two years, as palladium is increasingly finding new uses in high-technology end uses.

Natixis expected the rising costs at South Africa’s platinum mines to remain a significant feature of the platinum market in years to come, and the bank expected palladium prices to be significantly pushed up on the back of South African mining outages. South Africa produces about 35% of the global palladium supply.

After the gold price drifted lower in the early part of the year, dampened by a strengthening of the dollar and weak demand from India, gold had regained some ground in recent months as speculation about a third round of quantitave easing (QE3) by the US federal government was confirmed this summer, resulting in a strong rally.
However, with the federal government choosing to buy mortgage-backed securities, rather than treasuries, Natixis pointed out that it was not clear how the implementation of QE3 would benefit the gold price.

“Instead, the gold market must focus upon the imminent US fiscal cliff and subsequent need to raise the US debt ceiling as the two major events likely to drive gold prices in 2013. If the US follows Europe into its own fiscal crisis, gold prices would have substantial upside, but in our central scenario, in which the fiscal cliff can be avoided, we would expect gold prices to drift lower over 2013, averaging $1 640/oz,” Natixis said.

Further, the price of silver, which generally keeps in-step with gold trends, had recovered about a quarter of its value in August and September, after falling by almost 30% between February and June. The market analyst said the silver price’s behaviour suggested no changes in the commodity’s fundamentals, but rather its price movements were strongly influenced by generic market sentiment and investor behaviour.

Natixis expected the price of silver to ease off into 2013 to average $30/oz, if the US managed to avoid the imminent fiscal cliff.

INVENTORY CONCERN

Natixis said one of the repercussions of the long delay in China’s economic recovery this year was an unanticipated accumulation of inventories, particularly evident in the base-metals market.

As a result of this heavy stock accumulation, the bank said Chinese metals users were unlikely to be squeezed into paying markedly higher prices over the coming year, even if the Chinese economy did begin to improve, as the new cadre of political leaders who took charge this year begin to accelerate the implementation of a wide range of already planned stimulus measures.

The bank found that copper prices had been better supported this year than that of other base metals. The copper market was expected to remain in deficit throughout much of 2013; however, prices were expected to struggle to push past 2011-highs, as China was seen shifting its focus from restocking to destocking, and the country anticipated added production from new projects such as Turquoise Hill Resources’ Oyu Tolgoi copper/gold project, in Mongolia.

The price of copper was expected to rise about 5.5% to average at about $8 500/t in 2013.

The price of lead was expected to rise by 17.5% to $2 450/t, driven higher by rapidly expanding demand from developing countries, where car fleets were ageing and demand for electronic bikes was growing fast.

The price of nickel was expected to rise by 5.1% to $18 750/t, as price growth remained constrained, owing to high stocks of both ore and the finished metal.

The aluminium price was expected to rise 7.4% to $2 190/t in 2013, with the market also seen suffering from chronic oversupply.

Zinc was expected to grow by a modest 6.1% to $2 090/t, the market also seen to suffer from excessive stockpile accumulation.

Edited by: Creamer Media Reporter

Wednesday, September 19, 2012

Platinum up 22% since mid-August

What a difference a black swan can make.

Spot platinum is up 22% from mid-August after the Lonmin massacre and fears that South Africa, responsible for over 80% of the world's platinum production, would be slowed.

Bernanke QE3 announcement late last week added another lift to the metal.

Before last month's tragic news, the metal was trading at $1,393/oz. Currently it trading over $1,700/oz, , a price level not seen since late February.

As Bloomberg noted, this is platinum's biggest rally in 25 years.

Work has stopped at six platinum mines and one gold mine in South Africa. The government considers the mining sector critical and the police are cracking down on striking miners.

Friday, August 17, 2012

Potential impact of SA mine violence on platinum - and perhaps on gold too

The massacre at Lonmin's Marikana platinum mine has huge implications for the country's struggling platinum mining sector. Could it spread to the gold mines too?

Nearly 50 years ago when I worked there on the mines, Rustenburg in South Africa used to be a relatively sleepy small town some 160 km from Johannesburg where big city dwellers would repair for a quiet weekend at tourist resort Retief's Kloof and farmers grew oranges, despite it being the site of Rustenburg Platinum Mines (then run by JCI) then and now still the world's largest platinum mine. Nowadays, with the expansion of the platinum sector, first with Impala and then with Lonrho (now Lonmin), Aquarius and others, the sleepy town has changed out of all recognition as the platinum mining industry expanded, and expanded. Anglo American, which was a major shareholder in JCI, effectively decimated the latter company and absorbed Rustenburg Platinum into Anglo American Platinum (Amplats) and the town became even more the centre of the world for platinum mining and for exploration on the Bushveld Complex Western limb, which accounts for most of South Africa's platinum output.

Nowadays the orange groves have virtually all disappeared and it is doubtful if many tourists from Jo'burg would consider the relatively short drive to the Rustenburg town for a weekend's relaxation - at least not in the town itself - although the surrounding area - particularly the Magaliesburg and the Bushveld - remains a most attractive destination. But from now Rustenburg may also go down in history as the general location for the Marikana platinum mine (some 20 km away) massacre where an edgy police contingent opened fire on threatening, and armed, striking miners. Looking at this from 9,000 km away it seems that the miners themselves have been caught in a turf war between rival Unions with the new kid on the block agitating for enormous wage increases which the currently struggling platinum mines could not even contemplate.

At the heart of the problem appears to have been the Association of Mineworkers and Construction Union (AMCU) which has been targeting the platinum mines to extend its membership at the expense of the established mining unions, the NUM and Solidarity which are nowadays seen by some as part of the mining establishment. As part of the turf war, the AMCU appears to have targeted the mine rock drill operators (RDOs) - a key part of the workforce, which reckons to have a specific grievance, and who are reported to be demanding a more than doubling of their wages. The RDOs could be considered the elite of the mining workforce as without them there can be no production. The platinum mines, particularly those operating on the very narrow Merensky reef, are notoriously difficult to mechanise and thus employ large numbers of RDOs. There can be tribal influences at play here also, with the RDOs often drawn from specific tribal groups which can be played upon in the mine environment.

And the platinum mining sector really is struggling nowadays. As the mines have gone deeper and got hotter and hotter (there is an extremely high temperature gradient in the geologically young Bushveld Volcanic Complex rocks) and costs have risen dramatically, most of the operations are increasingly becoming marginal at current platinum prices. The accident rates have risen and there has been seemingly an ever-rising degree of unrest amongst the workforces at some of the operations stimulated by the inter-union rivalries.

What now has to be particularly worrying for platinum miners and investors is whether these union turf wars, and the associated internecine violence which had already led to a number of worker injuries and deaths in the union vs union disputes - and now the Marikana massacre where the latest death count is reported to have reached 40 - is likely to spread to the other mines in the area. Indeed it has already done so with the initial troubles having surfaced at Impala's operations. These may have died down but could easily flare up again. South African mine workforces can be very volatile and there is a growing suspicion here that there is also an underlying political agenda behind some of the union activities stirred up by dissident factions in the dominant ruling African National Congress political party.

So what does this all mean for the platinum miners and platinum prices? South Africa produces some 70% of the global platinum supply. Prices are weak because platinum is in surplus, but any major disruption spreading to the big Amplats and Impala mines around Rustenburg, and beyond, could very rapidly turn a surplus into a deficit - and also lead to major shutdowns in some of the more marginal operations - at least until prices pick up to the extent that they become worthwhile to reopen again. Lonmin's Marikana mine has already effectively been shut down by the violence. Prices are already beginning to rise with platinum up over 1.5% in early trading in Europe today before settling back a little and up 5% over the past three days. Should the threat of escalation develop then consumers will start to move into the market to secure supplies and the gap between the platinum and gold price could well narrow again.

But, the issues which have led to the platinum mining violence are potentially mirrored in South Africa's gold mines - an even bigger sector (just) - and the government will be hugely worried about the potential spread of mine unrest given the potentially huge impact on the South African economy of a mining meltdown. South Africa may no longer be the world's largest gold producer - a position it held for nigh on a century, but it still remains one of the world's biggest and disruption here could have a very negative impact on global mine supply - and again lead to the permanent closure of some of the more marginal operations, which are struggling to stay afloat even at current gold prices.

SOURCE:  REUTERS

Platinum prices finally rise but at what cost?

The South African sector has some very tough questions to ask itself as what exactly its platinum sector is going to look like.

It was going to take something truly awful to tear platinum traders' eyes away from the ever-changing patterns of the European crisis and the poor demand outlook for the metal it has engendered. But, not even the most ardent bulls, could have imagined the scenes at Lonmin's Marikana operation near Rustenburg or the ever increasing death toll.

But, while terrible, the violence has served to bring the supply issues currently facing the South African platinum sector into sharp relief. And, as a result, prices are finally moving. Platinum prices rose around $40 an ounce yesterday and have continued that move today. That is not to say that the problems facing the sector were being kept a secret. It is just that many people were too focused on the demand side of the equation to worry that much about supply.

One just has to look at the statements from Aquarius Platinum CEO, Stuart Murray, and Platfields CEO, Bongani Mbindwane to get a sense of how dire things are.

So much so that Aquarius Platinum has halted production at its Everest and Marikana operations; Anglo American Platinum CEO Neville Nicolau resigned "to pursue other interests" one day after the group said first-half profit fell 78%, while Lonmin, before the violence caused it to halt all of its platinum belt operations, announced that it had cut spending for the rest of the year by $20 million to $430 million. And, more importantly it had slashed capex plans for its 2013 and 2014 financial years to $250 million - just enough, effectively, to sustain current operations.

Indeed, Christy Filen, in these pages last month (see South Africa's platinum pain deepens) wrote that "of the country's 26 mines, eleven were found to be operating at a loss with a further four marginal at best.

In other words, this time courtesy of Standard Bank, from its Commodities Daily note out yesterday, "With a PGM basket price of ZAR8,990/PGM oz, we estimate that 14.6% of platinum production (690K oz) is at risk (based purely on negative margins), as well as 13.15% palladium production (353K oz) and 12.9% rhodium production (12.85% oz)."

The bank is quick to add that, given the structure of the South African sector, not all of these ounces will be lost. But, it says, "it is indicative of the price pressures platinum producers are experiencing."

How did it get so bad?

Over the past four years, or to put it another way, since the start of the global financial crisis, platinum prices have struggled to recover from a massive sell off that happened between March and November of 2008.

As can be seen from the graph above, platinum prices peaked around $2,133 in March of 2008 then fell as low as $840 an ounce before starting the long march back up. Much of the reason for this is that a large portion of platinum demand comes from the metals use as a catalyst in car exhausts. And, since 2008 the auto market in Europe in particular has been fairly weak. It is important to note here that the European car market is dominated by diesel-fuelled cars which still, in the main, use platinum auto catalysts. This is in comparison to gasoline-fuelled cars(which dominate the markets in countries such China and the US) that mainly use palladium auto catalysts .

The weakness in demand from Europe's car industry and other sectors, such as jewellery has weighed on prices, especially because there hasn't been, until recently a concomitant pullback in production.

As a result producers have been forced to take a hit, one made worse by dramatic increases in costs both in terms of labour and raw materials.

So what happens now?

According to UBS's analyst Edel Tully writing from 'London, " While lost platinum production so far does little to put a dent to our estimated surplus of 210koz, the risk is that the situation starts to infect other major operations in South Africa, thus softening the surplus balance effect."

She adds, "However, if the unrest becomes materially worse from here, there is also the potential of positive government intervention easing fears which would in turn dampen platinum's newly-found strength. But there are doubts as to whether the government will be able to respond quickly enough, particularly given the politics surrounding the ANC leadership elections in December."

Standard Bank, while still negative on the demand side of the equation, said in a note out yesterday, that because of where current prices still sit, it sees "little value in being short platinum" now.

"We maintain that SA platinum production will be 567K oz less in 2012 than in 2011 (we expect SA to produce 4,288K oz in 2012), resulting in an actual deficit market this year. However, we expect the market to have returned to a surplus in 2013," it says.

And it adds, "With lower production volumes because of strikes, the cost of producing an ounce of platinum is also rising, putting further pressures on producers."

All in all, while prices may have spiked briefly and could continue to rise if the unrest at Lonmin continues, it is unlikely to be as a net benefit for the country.

Longer term, the South African sector has some very tough questions to ask itself as what exactly its platinum sector is going to look like.

, the root causes of the dire straits in which the sector finds itself remain and, things are likely to get much tougher before they start to improve.

Friday, July 13, 2012

Gold miners should up dividends - pockets of value in platinum

*George Topping and **Michael Scoon discuss gold company dividends, how supply shortages are shaping the landscape for platinum group metals and their views on iron ore and zinc. Gold Report interview.

The Gold Report: George and Michael, we're here today to discuss platinum group metals (PGMs), as well as some bulk commodities. It's no surprise that each of the 15 commodities you follow has suffered double-digit price declines over the last year, except for potash, which was up about 9%, and gold, which was up a mere 3%. The hardest hit was nickel, down more than 27%. With commodity price performances like that, why should investors stay in the mine commodity sector?

George Topping: Investors are focused on the immediate economic conditions rather than seeing commodities as a store of value during times of currency debasement. Make no mistake about it; the only way out of the current predicament is the printing of money and the debasement of currencies. This short-term focus on European worries and investors reducing risk is putting pressure on most metal prices, but it won't last. As weak as the global economy is, it is interesting that commodities are still historically strong.

TGR: Is what's happening in the market a bit of an overreaction?

GT: Yes, it is. The market is too focused on the short term instead of the consequences of the solution to the economic woes.

TGR: George, you're on the record as saying that large gold companies need to materially boost their dividends in order to compete with gold exchange traded funds (ETFs), which are funneling away billions of investment dollars. How high do dividends need to be to staunch the bleeding?

GT: I'd aim for a 5% dividend yield to attract fund flows back into the sector.

TGR: Big mining companies have dividends that are much higher than the gold companies. Why haven't gold companies taken that approach?

GT: The gold companies have been trying to grow gold production at any price. We call it "GAAP," growth at any price. Circumstances have changed. Growth is now unaffordable due to inflation. Capital costs have doubled in the last four years. It's time for the gold mining companies to wake up, stop building these new $6 billion mining projects and pay more dividends to shareholders.

TGR: PGM-focused companies are also losing dollars to ETFs. Should they raise dividends, too?

GT: Unfortunately, it's a different situation for PGMs. PGM prices are not high enough for most of these companies to generate sufficient cash flow to pay a healthy dividend.

TGR: How do these companies lure investment dollars?

GT: They should take some free cash flow and invest it in operational improvements. Don't build new mines. Improve existing mines through capital injection, by updating equipment and providing incentives to the workforce. They need to bring about profits per ton rather than focusing on headline production.

TGR: The prices for platinum and palladium are both down more than 20% since June 2011. Is there any relief in sight?

GT: Yes, we're finally starting to see closures. The mining industry in South Africa, which produces 70% of the world's platinum and 35% of the world's palladium, has been disseminated. It won't be long before prices start to move higher.

TGR: The region has also had issues with electrical blackouts and whispers of nationalization. How are those issues affecting supply?

GT: I was in South Africa recently and I'm not impressed with the way the country is going. Corruption is rife. I must have taken about 15 taxi rides and all 15 taxi drivers told me corruption was endemic such that you couldn't move without paying a policeman or civil servant-jobs that they are meant to provide you for free. Safety inspections are another issue. The competence of inspectors is a problem. It affects the industry very negatively.

If I were a mine manager or a chief executive of a platinum company, I'd aim for the highest grade I can find now because I don't know what's going to happen next. I don't want to leave money in the ground for five years. I'd also be less likely to invest in the next generations of shafts. I wouldn't spend a couple of billion dollars when I wouldn't see the first cash flow for the next six years. I'd be looking outside of the country for growth. It's negative in the short term, but it's going to get even more negative as the consequences of that lack of investment become clear.

TGR: Are those problems creating a lot of value in the space or is it just too risky for investors?

GT: There are pockets of value. Companies that have shallow ore, are closer to cash flows and have large resources are the ones that are likely to get taken out. Rather than spending a couple of billion dollars on deep shafts, it's easier to buy any available assets with shallow ore next to an existing operation.

TGR: Are you more bullish on platinum or palladium?

GT: Platinum, mostly because production is challenged in South Africa. Platinum also has a major jewelry role, particularly in China. There's a tremendous amount of growth to come. Palladium will do well, but platinum is safer in the long term.

TGR: The biggest single use for both of these metals is in catalytic converters in automobiles. How far off is global economic growth for that application?

GT: The weightings of platinum, palladium and rhodium in catalytic converters are generally increasing. As countries become more developed, they become more environmentally conscious. There should be a tightening on auto catalytic converters in developing nations just as we have had here. There should be increased usage based on that. In fact, last year North American and European governments mandated that large and off-road trucks have to have catalytic converters.

TGR: Let's move to iron. Overall iron ore prices were down 8% in the second quarter, mostly on weak demand from Chinese steelmakers. Do you expect that price weakness to continue in the near term?

Michael Scoon: Yes. The summer is a seasonally weaker period for all industrial commodities. Low-volume trading activity in the spot market can result in price volatility on any given day, but year-to-date the price has averaged about $145/tonne. And, as you said, prices are down about 8% over the quarter. However, I saw a report this morning that the spread between bid and ask-on-the-spot exchange has narrowed substantially.

TGR: The iron ore market used to be governed by yearlong contracts, but Chinese steelmakers would default on those in order to take advantage of lower near-term prices. Do you think we'll get back to the point where the prices are set for a year or will the spot market continue to dominate as it is now?

MS: The spot market is here to stay for the foreseeable future. It was quite an undertaking to change the term of the contracts. Today, there's a substantial amount of iron ore transacted on either monthly or quarterly pricing. Shorter-term contracts are going to be the way of the future.

TGR: What's Stifel Nicolaus's forecast for iron ore prices through 2013?

MS: I forecast prices softening in the summer months in line with the 8% decline over the 2Q12. I see prices remaining soft in the third quarter, but recovering in the fourth quarter to average around $140/mt in 2012. Prices could fall in 2013 to $131/mt, but settle around $125-130/mt in the long term, based on the marginal cost of production.

Over the course of the next five years, new supply from the three major producers may push the high-cost producers off the cost curve into uneconomic territory. However, the Big Three will be incentivized to keep that marginal cost of production high as they sell more iron ore into shorter-term contracts.

TGR: The Big Three carry a reasonably high dividend-at least relative to the mining space. In 2009 and 2010, and even into 2011, steelmakers were going downstream and buying iron ore companies to control the cost of their raw materials. Does that trend have any momentum left?

MS: That trend does have some momentum left in it. The number of transactions has slowed as steelmakers aren't as active as they were. However, large new sources of iron ore supply are coming from risky jurisdictions, such as West Africa. Steel producers will continue to look for joint ventures or to own projects in safe jurisdictions to help control their supply. Steel producers want to avoid being caught in a supply squeeze. It's to their benefit to secure 30-50% of their iron ore requirement through joint venture partners and offtake agreements in order to derisk their businesses.

TGR: George, in June 2011 you told Reuters that you believed zinc would be a 2013 story. After reaching roughly $2,200/mt in January 2012, zinc prices have trended steadily lower to around $1,760/mt, or about $0.79/pound (lb). Meanwhile, the London Metals Exchange has almost 1Mmt of zinc in stockpiles that are at a historical high. What underpins your thesis that zinc prices will have climbed dramatically higher by this time next year?

GT: Two things: Nothing cures low prices like low prices. Second, the market is forward looking. In 2013, it will be looking at 2014 and reacting accordingly.

TGR: What's your price forecast for zinc into 2014?

GT: I forecast average prices of $0.90 this year going to $1.08 in 2013 and $1.15 in 2014.

TGR: What is its cost per pound?

GT: About $0.60.

TGR: How does that rank relative to the rest of the industry?

GT: It's in the lower half.

TGR: Do you have any parting thoughts for us today on the natural resources space and the mined commodity space that may allay some investor concerns?

GT: There's been a tremendous selloff in the equities, so much so that most of the commodity stocks are very cheap relative to metal prices. The past is the past. Investors should look forward to stimulus packages in China and Europe. There is a lot more debasement of currencies to come. The commodities will still have a role to play in protecting wealth. We'll continue to see a lot more M&A activity given that share prices have fallen. In the current environment, it's difficult to raise debt and equity financing, so juniors will be driven into the arms of seniors.

TGR: Thanks, gentlemen.

*George Topping joined the Stifel Nicolaus Research Team in connection with Stifel's acquisition of Thomas Weisel Partners LLC in July 2010. Topping joined Thomas Weisel Partners in December 2009 as a senior mining analyst covering base metals. Topping brings 10 years of experience in the mining industry and 14 years as a sell-side analyst. Topping began his mining career in 1985 with a senior South African mining company and worked both in operations and mining strategy roles for the gold and coal sectors. In 1995, Topping became a sell-side analyst covering platinum, coal and base metals with Irish & Menell Rosenberg, a South Africa-based financial services firm. Topping moved to Canada in 1997, where he has continued as an analyst covering base metals, including a six-year tenure at Sprott Securities from 1999-2005, and most recently at Blackmont Capital since 2007. Topping earned his undergraduate degree in mining engineering from the University of Strathclyde in Glasgow, Scotland.

**Michael Scoon joined the Stifel Nicolaus Research Team in connection with Stifel's acquisition of Thomas Weisel Partners LLC in July 2010. Scoon is a research analyst covering basic materials, exploration, development and production companies in the mining sector. He joined the firm in January 2008 and is based in Toronto. Scoon received a Bachelor of Science in accounting and international business from Miami University in Oxford, Ohio, and is a Level III candidate in the Chartered Financial Analyst program.

Article published courtesy of The Gold Report - www.theaureport.com

Wednesday, May 30, 2012

Platinum surplus diminishing as bear market approaches

Barclays Plc estimates the metal's 17% plunge to $1,433.50 since late February leaves it within 3 percentage points of the common definition of a bear market.

The first drop in platinum mine supply in four years and record car sales, the biggest source of demand, are reducing a surplus of the metal and shoring up prices on the brink of a bear market.

Output will drop 4 percent to 6.14 million ounces this year as labor strikes and safety concerns disrupt mining in South Africa, the biggest producer, Barclays Plc estimates. That will diminish the annual glut by 90 percent to 37,000 ounces, the bank predicts. Prices will average $1,750 an ounce in the fourth quarter, 22 percent more than now, the median of 13 analyst estimates compiled by Bloomberg shows.

The metal, used to make autocatalysts and jewelry, slid 16 percent in the past three months and hedge funds are now their least bullish since at least 2009 on speculation that slower global economic growth will curb demand. Prices are now within about 1 percentage point of average production costs, which continue to rise as companies dig as deep as 1.3 miles to find ore and face surging wage and energy bills.

"Platinum is very, very cheap at the moment," said Thorsten Proettel, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany and the third-most accurate forecaster of platinum prices in Bloomberg Rankings in the two years through December. "It's more the supply side which could help the platinum price accelerate because supply is very tight."

Bear Market

The metal's 17 percent plunge to $1,433.50 since late February leaves it within 3 percentage points of the common definition of a bear market. The slump pared this year's gain to 2.3 percent, still beating the performance of gold and palladium. The Standard & Poor's GSCI Spot Index of 24 commodities fell 3.5 percent since the start of January and the MSCI All-Country World Index of equities rose 0.6 percent. Treasuries returned 1.2 percent, a Bank of America Corp. index (MXWD) shows.

It costs an average $1,437 to extract an ounce of platinum, according to Proettel. The slide in prices is eroding earnings, discouraging the development of new mines or expansions. Impala Platinum Holdings Ltd. (IMP), the second-biggest producer, will report a 21 percent drop in net income in 2012 while London-based Lonmin Plc, the third largest, will make 72 percent less profit in its fiscal year ending in September, analysts estimates compiled by Bloomberg show.

Hedge funds and other large speculators cut wagers on a rally by 70 percent to 6,200 U.S. futures and options in the three months through May 22, according to Commodity Futures Trading Commission data. Holdings in exchange-traded products backed by the metal dropped 11 percent to 41.1 metric tons valued at $1.9 billion since September, data compiled by Bloomberg show.

Electrical Goods

Rebounding prices may encourage more recycling, compensating for the decline in mine output. Scrap supply from autocatalysts, electrical goods and jewelry reached a record 2.05 million ounces last year, from 565,000 ounces in 2002, according to Johnson Matthey Plc, the maker of about one in three of all autocatalysts. Prices averaged an all-time high of $1,721 last year, compared with $541 in 2002.

The surge is encouraging carmakers to use more palladium in autocatalysts, canisters that have honeycomb-like surfaces and convert emissions into less harmful substances. Platinum's sister metal is trading at $601 an ounce. Palladium accounted for about 30 percent of the metal loaded into catalytic converters for diesel-power vehicles last year, up from 20 percent in 2009, London-based Johnson Matthey estimates.

Largest Car Market

Demand for platinum, which Barclays anticipates will grow 1 percent to 7.99 million ounces this year, may fall short of expectations as economic growth weakens. China, the world's largest car market, expanded 8.1 percent in the first quarter, the slowest pace in almost three years. About $4.3 trillion was erased from the value of global equities since April on concern that Greece will exit the 17-nation euro zone.

Global sales of cars and light commercial vehicles are poised to rise 5.5 percent to a record 79.4 million units this year, according to LMC Automotive Ltd., a research company in Oxford, England. Carmakers account for 38 percent of platinum consumption, Johnson Matthey estimates.

Prices may also rebound as supply becomes more constricted. Mining companies are contending with strikes by workers demanding higher wages. South African inflation rose to 6.1 percent in April, up from 3.5 percent at the end of 2010, government data show. Workers at Johannesburg-based Impala's Rustenburg mine in South Africa, the world's biggest, started a month-long strike over a pay dispute in January that cut more than 100,000 ounces of output. The company said May 24 that the latest labor unrest at the site cost 6,000 ounces.

Miners Killed

Work has also been suspended after 123 mining deaths and 2,918 injuries in South Africa last year, Mineral Resources Minister Susan Shabangu told reporters March 20. The platinum industry lost about 300,000 ounces of production last year because of safety stoppages, London-based Anglo American Plc said Feb. 17.

Mine disruptions in the first quarter drove platinum prices 17 percent higher, the best performance in three years. While most of that was erased in the subsequent slump, the metal's gain since the start of January compares with a 2.3 percent advance in silver, 0.8 percent increase in gold and an 8.2 percent drop in palladium.

Energy Prices

Lonmin extracted 4.4 grams of platinum-group metals from every ton of ore last year, 5.4 percent less than in 2010, according to the company's annual report. Production costs rose 11 percent because of wages, energy prices, safety stoppages and strikes.

The company will report net income of $77.3 million in the 12 months through Sept. 30, compared with $273 million a year earlier, the mean of 10 estimates shows. Impala will make 5.25 billion rand ($630 billion), compared with 6.64 billion rand in 2011, according to the mean of seven estimates.

That contrasts with Anglo American Platinum Ltd., the biggest producer, which is expected to post earnings of 4.35 billion rand this year, from 3.59 billion rand in 2010, the mean of six estimates shows. Shares of the Johannesburg-based company fell 9.4 percent this year, compared with an 18 percent drop for Impala and 24 percent retreat for Lonmin.

Shafts now extend down as much as 2,115 meters (6,940 feet) and temperatures at the rock face of Northam Platinum Ltd.'s Zondereinde mine in South Africa can reach as high as 162 degrees Fahrenheit (72 degrees Celsius). It uses as many as seven refrigeration units to pump chilled air into the mine, according to data on the company's website.

"For many producers the price is insufficiently high to sustain the industry," said Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto. "Given the fact that we're going to see some decent demand growth over the next several years, we're going to have to see expansion."

Tuesday, May 15, 2012

Monday metal meltdown: Gold drops to 10-month low

By lunchtime gold was off its lows for the day, but still trading at levels last seen in early July last year.

Gold for June delivery was off $22.60, or 1.43%, to $1,561.40 an ounce on the Comex division of the New York Mercantile Exchange by 1:20pm EST after briefly dipping to $1,555 in morning trade.

Monday saw a broad sell-off in commodities and mining stocks as worries over US banks and the European sovereign debt crisis intensified. JP Morgan's $2 billion trading loss led to a sell-off in banking stocks in the US while Greece appeared to be sliding into a protracted period of chaos.

An 11th-hour attempt to form a coalition government failed over the weekend which could lead to a new vote, increasing the chances of the country dropping out of the Eurozone altogether.

Gold was also hurt by a sharp drop in bullish calls by investors with net speculative longs falling 33% while those shorting the metal, believing that the price would fall, bought 51 tonnes last week.

Standard Bank summed up the situation this way: "What is more disconcerting is that while investors have over the past few weeks appeared cautious of running too short on gold, this fear looks to have evaporated."

Other precious metals also fell with July silver declining 1.94% to $28.33 an ounce. July contracts for platinum gave up 1.9% or $27.50 to $1,443.90 an ounce. After gaining more than 16% in the first quarter of 2012, platinum has been in steady decline since the start of April and looks set to give up all its gains for the year. June futures in palladium fell $9.05, or 1.5%, to $594.30 an ounce, near lows last seen in November.

Copper for July delivery fell 2.62% or 10 cents to $3.55 a pound, near price levels last seen at the beginning of the year.

Both copper and gold are now down around 20% from its all-time record highs of $4.49 a pound and $1,911.60 an ounce set in July and September last year.

News out last week from the world's two largest gold consumers – a massive boost to Chinese gold imports and India abolishing a tax on gold jewellery — did little to encourage buying of the yellow metal.

Strong central bank purchases this year also did not soothe gold investors' fears about industry fundamentals.

Bullion bulls are now focusing on any news from US monetary authorities about further policy easing, more specifically the Fed's program of quantitative easing.

The first two round of quantitative easing were a massive boon for gold. QE1 kicked off on 16 December 2008 when an ounce of gold was changing hands for $837.

The Fed bought $2.3 trillion of bonds during the first two rounds that ended in June last year. Another policy instrument to keep interest rates low – called 'Operation Twist' – that pumped $400 billion into markets is set to expire next month.

If the Fed again floods the market with cheap money – something that appears more and more likely – gold should recapture its allure as a storer of wealth and an inflation hedge. And it would hurt the dollar, boosting the metal's price.

Sunday, May 13, 2012

Gold to lose more glitter in 2012, says Natixis

With many metals having erased their 2012 gains this month, French bank Natixis failed to paint a much rosier outlook for the rest of the year in its latest quarterly review, calling for gold to average $1 540/oz.

Copper, often used to gauge the world’s economic outlook, will average $8 800/t this year, rising to $9 125/t in 2013, as prices benefit from a “significant deficit” in 2012, the bank said.

Gold averaged $1 572/oz last year, meaning that 2012 would be the first annual price decline the metal has seen in the past 11 years if Natixis' predictions proved correct.

Key to gold’s performance for the remainder of 2012 will be whether or not the US Federal Reserve embarks on third round of monetary stimulus, known as quantitative easing.

“Amid renewed concerns over both the European and US economies in recent weeks, the prospects for further quantitative easing (QE3) cannot yet be ruled out,” Natixis said in its second-quarter metals review.

“Should QE3 proceed we would expect gold prices to receive a significant boost.”

Meanwhile, fears over Greece flared up again in May, after the country threatened to exit the euro zone and default on its debts.

Natixis pointed out that “the inconvenient truth that is democracy” had challenged fiscal austerity in Europe, while at the same time the US economy stuttered, and China was yet to show proper signs of a growth recovery.

Gold prices slipped to $1 583/oz on Friday, after JP Morgan’s $2-billion bad bet on hedging dragged down markets in general. The precious metal, which investors see as a safe-haven in times of crisis, hit a new peak above $1 900/oz last year.

Buying from central banks will support the gold price and lessen volatility, the financial institution put forward.

AngloGold Ashanti CEO Mark Cutifani said in a Thursday interview on Talk Radio 702 that gold prices could still trounce $2 000/oz this year, and that the immediate reaction from investors in times of crisis was to buy US dollars, but that they ultimately bought bullion to store wealth.

COPPER

For copper, used in construction and vehicle manufacturing, Natixis said the market was more worried about weak Chinese growth in the second quarter than about a potential shortage of the physical metal.

Copper was trading at $ 8,195/t for cash buyers on the London Metals Exchange.

“With the crisis in Europe showing few signs of relenting, weakness in the Chinese economy has meant a substantial accumulation of copper stockpiles, in particular at bonded warehouses,” commented the bank.

“Remaining positive on the outlook for Chinese growth, we expect copper prices to benefit from a significant copper deficit this year.”

Natixis forecast silver prices would average $27.3/oz this year, a 23% reduction 2011’s mean.

Platinum will likely average $1 650/oz and palladium $740/oz in 2012, largely in line with the prices for 2011.