What the future holds for platinum, gold

2014-04-14 16:44

The prices of South Africa’s major commodity exports, platinum and gold, are set for slow recoveries over the next few years while iron ore and coal prices are set to fall or hover at current levels, according to Standard Bank commodity strategist Walter de Wet.

Commentators say the price of platinum has barely responded to the ongoing strike in South Africa, despite the country supplying the vast majority of new supplies.

Standard Bank does expect some impact by the end of the year with platinum prices possibly “spiking towards $1?600 [R16 814]” later this year from the current $1?450 per ounce.

The strike probably cut platinum production by 400?000 ounces in February, March and the last week of January, De Wet said today.

That figure excludes the very likely loss of April’s production at the affected mines.

The platinum market is technically in deficit – mine output is lower than demand.

According to De Wet, total supply from mines will fall to about 5.45?million ounces while the year’s demand will be around 6.7?million ounces.

The difference is made up by recycling, which will add another 1?million ounces to supply.

The deficit in mine supply, aggravated by the strike, is, however, eating into above-ground inventories.

“There is a lot of inventory around,” says De Wet.

The question is at what price these inventories will be released into the market, he added.

The platinum price, however, “cannot cut into the cost curve forever,” says De Wet, referring to the price hovering at levels below the operating costs of many mines.

Many of the deep-level mines in Rustenburg are operating at losses.

Platinum should trade higher next year at an average of $1?725 per ounce, rising to $2?063 by 2017, De Wet’s team concludes.

The gold price will also likely “bottom out” this year, trading at an average of $1?296, 8% lower than last year, he said.

After that, the price would probably rise gradually towards $1?550 in 2017.

The gold price usually has an inverse relationship with American real interest rates.

The US Federal Reserve’s intention to taper and ultimately end so-called quantitative easing, which has depressed interest rates to zero, is the major risk for gold losing its value.

The expected rise in US interest rates could theoretically drive the gold price down to $1?100, but according to a report by De Wet and his colleagues, actual physical demand for the metal would probably help maintain prices.

Thermal coal, another major South African commodity export, also lacks any major price-inflating impetus, he said.

The price applicable to about 86?million tons of coal exports from Richards Bay is expected to average $76 per ton this year and increase only slightly to $82 by 2017.

A major new element depressing global coal prices is the US’ new exports – another knock-on effect of the country’s booming shale gas industry.

Domestic gas production is killing the American market for coal and reducing the country’s need for oil imports.

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