Supply Disruptions Mean Higher Prices for Platinum

Platinum investing is now becoming so expensive that the current price of platinum is not covering the costs of digging it out of mines in South Africa.

New York, NY (prHWY.com) June 19, 2012 - The platinum belt in South Africa is home to roughly 80% of the world's supply of the precious metal. The balance comes from Russia and Canada.

Earlier in the year, the unions in South Africa shut down the world's largest platinum mine for six weeks. After an agreement was reached, it looked like the worst was over. However, unions are proposing a new strike at the mine, which has an output capacity of 5.5 million ounces per year of the precious metal.

The largest platinum investing miners in the world are complaining that costs in South Africa have increased at least 15% per year over the last few years, while platinum prices have fallen 12% in the last four months.

Canadian-based Eastern Platinum Limited (TSX/ELR) announced that it would suspend its development of a platinum mine in South Africa due to the strikes, but also due to the weaker price of platinum, making the $100-million platinum investing venture unprofitable for now.

These closures, suspensions and strikes have resulted in the first supply decline of the precious metal in four years.

Platinum is almost impossible to corrode, even at very high temperatures, which is why it is still considered a precious metal. This property of platinum investing is the reason why it is one of the major components found in almost every catalytic converter produced in the world. The catalytic converter reduces a vehicle's toxic emissions.

Although platinum investing has found uses in other areas, such as solar panels, fiber-optic cables, and electronics, its primary demand comes from the production of the catalytic converter.

As everyone is worried about the global economy, one of the retail sectors of the market to slow first and by the most in a recession is, naturally, car sales. If car sales fall, then fewer catalytic converters will be needed, putting pressure on platinum prices and platinum investing.

It is reasonable to assume that there will be fewer car sales this year. However, as more mines shut down, the amount of platinum in the world is decreasing faster than demand is falling, which translates into a shortage of the precious metal.

As platinum investing is unprofitable at current prices, enough production is coming offline that prices will have to rise in order to attract more platinum investing into the marketplace. Furthermore, potential strikes in South Africa could diminish supply even further in 2012, making the precious metal that much more attractive.

Investors would do well to explore platinum investing. The dynamics are such that the precious metal is currently very cheap, as compared to its fundamentals, which presents a great opportunity for the astute investor.

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Tag Words: precious metal, platinum investing

Categories: Finance

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