Analysts say the current high price for platinum could be temporary, although further supply disruptions could drive it a little higher yet.

JOHANNESBURG -

The platinum price is approaching a level of US$1,500/ounce as safety-related closures of mines and lower than targeted production by majors are expected to stretch the supply deficit in the market.

Stanlib platinum analyst Sholto Dolamo told Mineweb today the market would see a significantly larger supply gap than was already expected next year if safety-related incidents and consequent temporary shutdowns of platinum mines continued.

He said the recent closure of Northam Platinum's Northam mine and a shaft at Anglo Platinum's operation at Rustenburg only added fire to expectations of a supply deficit in an "already tried market".

The reason for this was that major producers such as the world's third largest producer, Lonmin, have indicated that production will fall short of set targets this year.

"The closures at Anglo Platinum and Northam mine will only have a cumulative effect," he said.

Dolamo said that Chinese jewellery consumption recently gave the platinum price a boost as seasonal demand kicked in.

Interestingly, jewellery buyers who make their purchases on the "margin" - supported the price at $1,220/ounce this year as it dipped to this level at the beginning of September. This compared with a lower support level of $1,000/ounce last year and implied the price was increasing significantly with time.

However, the analyst sees current strength in the platinum price as a temporary spike and does not expect it to breach $1,400/ounce by the end of the year. However, if supply "continues to be guided down" the price could stick around $1,400/ounce or even rise to $1,500/ounce.

"One does suspect with the US dollar weakening that certain funds are going into precious metals and that investment demand is also playing a role in the stronger price," said Dolamo.

The key fundamental driver for platinum is the autocatalyst market, which accounts for the bulk of demand. Over and above this are factors that act on the margin and indicate what support levels are.

Platinum will naturally see speculative and investment buying when its fundamentals are stronger than that of the US dollar. Investors tend to move their funds to Exchange Traded Funds (ETFs) under these circumstances.

Stephen Roelofse, platinum analyst at Sanlam Investment Management, confirmed that supply disruption in the pipeline caused by temporary safety closures and lower than expected production at Lonmin, as well as the stronger gold price was driving the platinum price.

However, he feels the market will see an over-supply of platinum in the next two years as production from new companies is due to come to the market.

Roelofse said this would cap the platinum price at current levels, he couldn't see it remaining above a level of $1,500/ounce.