In free market economies, supply and demand is the primary enabler for price movement.
Any outside forces that affect supply and demand eventually affect prices. When you are considering a trade in the platinum
market some of the basic fundamentals that you should consider are:
1. Demand
Platinum has unique chemical and physical properties that make it essential in a wide range of industrial and environmental
applications. The platinum price continues to be partly driven by demand from the auto catalyst sector. There has been strong
growth in platinum use in the European diesel vehicle market and in the heavy-duty diesel sector. Platinum is used as a catalyst
in the production of nitric acid, which is used in explosives and fertilisers. Demand in those areas has also been strong.
2. Jewelry As the price of platinum has been increasing the demand has been dropping. The
biggest drop in demand is in the middle and low end jewelry. However, platinum demand remains strong in the bridal and the
luxury goods sectors. The high price of platinum is encouraging recycling. Second-hand platinum jewelry is being returned
for recycling and ending up as scrap supply.
3. Supply Unlike gold and
silver, platinum is only mined in a few countries. The major producers are South Africa and Russia. Since the mid-1980s, platinum
mine supply had been on the rise due to increases in South Africa. However, in 2007 mine production started to decline.
Due to declining mine production and increasing demand, platinum oversupply has been dropping steadily, and may soon be deficit.
4. South Africa South Africa is the largest producer of platinum in the world. The South African
mining industry has recently faced a number of challenges in meeting the global platinum demand. Interruptions in electricity
supply, safety shutdowns, geological and equipment problems, and a difficult labor environment have all affected South African
platinum supplies.
5. Russia Russia is the second largest platinum
producer in the world. Almost all its platinum is produced by Norilsk Nickel which also produces large amounts of copper,
nickel, cobalt and other commodities. Until the mid-2000’s, actual output levels were state secrets. Now Norilsk Nickel
and other Russian platinum producers release information on production, reserves, inventories and other data. This has allowed
for greater transparency and reliability of Russian platinum supply estimates.
These
are just some of the basic fundamentals to keep in mind when you are considering a trade in the platinum market. The geographic
concentration of platinum production makes it a very volatile market. Therefore, before opening up a commodity account to
trade platinum you should consult with a licensed commodity broker that follows the platinum market to discuss investment
strategies.
