Platinum Price Gaining Ground Relative to Gold

In recent weeks the platinum price has been benefiting from growing Asian demand and continuous power supply problems at South African mines. Since September 2011 gold has become more expensive than platinum, although since early February this price gap has been closing in platinum's favour, down from $200 to $65. This period of gold being more expensive than platinum – the longest since 1985 – continues, even though production costs in the platinum sector usually greatly exceed production cost for gold. Thus, some experts are convinced that the platinum price has great upward potential relative to gold.

According to the latest report from the German precious metals trading group Heraeus, the platinum price has benefited from continuing power supply problems at South African mines. Apparently, the South African Energy Company is not able to control the increasing power outages – although some mine workers recently stated that the current situation is not as bad as it used to be. South Africa is the world's leading platinum producer, and the world’s second largest palladium producer after Russia. The country's verified platinum reserves amount to 203.3 million troy ounces (6,323 tonnes), while its verified palladium reserves amount to 116.1 million ounces (3,611 tonnes). Moreover, estimates talk about a total of 939 million troy ounces in platinum reserves (29,206 tonnes) and 711 million ounces (22,115 tonnes) in palladium reserves.

In autumn of 2010 the Russian mining giant Norilsk Nickel officially announced that Russia's palladium reserves were dwindling, and that during 2011 Russian palladium supplies would drop drastically. Market observers have warned of future supply problems, as automobile demand in emerging countries such as China, India, Brazil and South Korea continues to grow. According to Heraeus, during the last two weeks of January China's platinum demand has grown significantly as the country prepares to celebrate the New Year. Many industrial end users have also taken advantage of the current prices to stock up their platinum reserves.

The illegal strike at the South African Rustenberg mine, operated by Impala Platinum (Implats) – the world's second largest platinum producer – has also encouraged investors and industrial end users to buy platinum, owing to concerns about future supply. According to the company's own data, Implats' daily platinum production has dropped by 3,000 ounces a day. This development has been affecting the global markets' platinum supply since the middle of January. In order to regain control, the company's management dismissed close to 18,000 employees who had been demanding higher pay. On Sunday the National Union of Mineworkers (NUM) announced that starting next week Implats will reemploy most of its dismissed workers.

Implats' management worries that for the fiscal year of 2012 the company might not be able to keep up its platinum production of 1.7 million troy ounces as promised to investors. Anglo American Platinum, subsidiary of the mining giant Anglo American, is also not satisfied with its revenues for 2010. According to its own statements, the company accounts for almost 40% of platinum production. Newly released data disappointed investors, since the company's yearly income dropped from $674 million to $527 million. This morning the platinum price was trading at $1,665 per troy ounce, while the gold price was fluctuating around the $1,730 level.