Platinum prices expected to gain this year, albeit slowly

As economic recovery continues gradually, analysts expect the resultant rise in demand to push up prices of the metal used predominantly in autocatalysts

Author: Jan Harvey (Reuters)
Posted:  Thursday , 22 Jul 2010

LONDON (Reuters) - 

Analysts see platinum prices rising as a gradual economic recovery leads to increased demand for the autocatalyst metal, but some of the euphoria that lifted forecasts earlier this year has evaporated after a hefty correction in May.

Platinum is now seen averaging $1,600 an ounce in 2010, a Reuters poll of 40 analysts, traders and fund managers showed, up from a January forecast of $1,553.75 an ounce.

But the latest forecast is well below that shown in a smaller poll conducted ahead of London Platinum Week in May, during which platinum and palladium, which had outstripped gains in other precious metals early in the year, slipped sharply.

That poll of 26 analysts gave a median forecast of $1,650.

While platinum bulls are pinning their hopes on expectations for an economic recovery, some caution remains after a spate of gloomy U.S. data. Prices slid in May as recovery hopes faded and fears of a double dip recession came to the fore.

Those fears are reflected in analysts’ forecasts for gold.

But analysts still expect to see broad global economic growth lifting car sales, in turn raising demand for platinum and its sister metal palladium.

“Although bearish sentiment is hindering upward price momentum, we expect auto demand to rebound this year and glass and chemical usage to recover as the economy recovers,” said Barclays Capital analyst Suki Cooper.

“Supply disruptions have been limited in the first half of the year, (but) as wage negotiations unravel and safety-related stoppages come under scrutiny in South Africa, we believe supply growth is set to be constrained.”

In the remainder of 2010, prices are expected to average $1,580 an ounce in the third quarter, rising to $1,630 in the last three months of the year. Spot platinum was trading just above $1,500 an ounce early on Wednesday.

In 2011, the median platinum price forecast climbed to $1,700 an ounce.

Platinum prices rose 19 percent in the first four months of the year, but failed to hold onto those early gains.

“The long run-up in platinum’s price was largely driven by investment demand, helped along the way by a recovering economy,” said BNP Paribas analyst Anne-Laure Tremblay.

“The recent correction came about as doubts emerged as to the solidity of economic growth on one hand, and receding investment demand on the other.”

PALLADIUM SEEN RISING

Palladium prices are seen averaging $472 an ounce this year, up from a January forecast of $434 an ounce but well below that shown in the pre-Platinum Week poll of $488 an ounce.

In the third quarter prices are expected to average $460 an ounce — above their current level of around $445 — with forecasts rising to $494 an ounce for the fourth quarter.

Palladium strongly outperformed other precious metals in the first quarter, rising 17.6 percent against gold’s 1.6 percent and silver’s 3.9 percent. It fell 7.4 percent in the second quarter, but remains up 14.7 percent year-on-year.

In 2011, palladium is expected to average $519 an ounce, up from a January forecast of $480 an ounce and a pre-Platinum Week forecast of $500 an ounce, due to expectations for improving demand.

“As the economy improves, demand for palladium from fabricators will add further support to prices in 2011,” said Rohit Savant, an analyst at CPM Group in New York.

“Relatively new investment vehicles such as ETFs have added additional support to palladium prices in recent years and are expected to continue doing so in the near future.”

New platinum- and palladium-backed products launched in the United States earlier this year by a unit of London’s ETF Securities helped support expectations for stronger demand.

Inflows of both have steadied in recent months but holdings remain relatively firm. The U.S.-based ETFS Platinum Trust now holds just under 304,000 ounces of metal, while the ETFS Palladium Trust holds just over 780,000 ounces of palladium.

(Additional reporting by Pratima Desai in London, Ruchira Singh in New Delhi, Rujun Shen in Shanghai, Frank Tang in New York, Nicholas Trevethan in Singapore; Editing by Sue Thomas and Veronica Brown)

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