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TagsLondon, 3 August 2012
The platinum-gold ratio has fallen to levels last seen in 1985, and this week the spread between the two metals widened to levels last reached in December last year, report Barclays Capital. While the spread has scope to narrow, in Barclays view, the current market dynamics suggest there is little to completely reverse this trend in the near term. Gold prices started to ease ahead of the FOMC meeting and dipped back below the $1600/oz mark as hopes of further quantitative easing were dashed again.
Platinum has been drifting lower over the past month searching for its floor. Previously, platinum had found support from buying in China and cost support. Buying in China has picked up over the past four months, and platinum volume traded on the Shanghai Gold Exchange is now up 4% y/y for the YTD and even though platinum imports into China are down 5% y/y over H1 12, shipments have also improved y/y over the last couple of months as jewellery fabrication demand has recovered.
China’s gold demand has been more opportunistic this year, according to Barclays, but volume traded on the Shanghai Gold Exchange remains robust and is up 9% y/y for the YTD.
"However, given the weak auto demand outlook for platinum – being skewed towards Europe – in the near term, the supply side is key. From a cost perspective, the bulk of PGM production is under water at current prices after accounting for sustaining capex," says Barcap's Suki Cooper.
"The continued ZAR weakness has provided a temporary respite for producers, and production cutbacks to date have been limited and not sufficient to balance the market. Furthermore, our equity analysts have highlighted that the South African Mineral Resources Minister held a meeting, including the Chief Executives of the PGM mining companies, to consider the challenges facing the sector and they agreed that all measures to support the industry will be explored before retrenchments.
"In turn, implying further production cutbacks are unlikely in the near term. Thus, while we believe the spread between the two metals can narrow as gold awaits its next catalyst and searches for a floor amid a weaker-than-normal monsoon and weak INR in India, the outlook for platinum remains fragile in the near term. Longer term we maintain the view platinum holds the better fundamental picture."
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