Lower Platinum Supply, Higher Prices in Store

Platinum bars
Platinum bars

The price of platinum is expected to average about $1,770 an ounce in 2013, its highest price since 2011. The price spike is due almost entirely to the closure of several mines in South Africa, the supplier of 75% of the world's stock of the white metal.

A related reason for the supply shortage is higher demand from makers of catalytic converters for automobiles. Global new car sales are expected to rise to around 83 million units this year, and each car will use slightly more than a tenth of an ounce of platinum. The calculates out to more than 9 million ounces.

Global production is expected to be around 5.7 million ounces and the rest will have to come from recycling, which currently supplies about 10% to 15% of global demand. Another platinum group metal, palladium, is also used in catalytic converters and drains off some of the demand for platinum.

A second large consumer of platinum is the jewelry business, particularly in China, and a third price driver is investment. Demand from investors in platinum- and palladium-based exchange traded products has contributed to the price rise over the last year.

The ETFS Physical Platinum Shares (NYSEMKT: PPLT) dipped to a low last summer during the first U.S. debt ceiling debate, but has steadily regained nearly all its losses to trade with $5 of its 12 month high.

The ETFS Physical Palladium Shares (NYSEMKT: PALL) posted a new 52-week high yesterday of $74.65.

The ETFS Physical Precious Metal Basket Shares (NYSEMKT: GLTR) is lightly traded, and like the Physical Platinum Shares traded at its 52-week low last summer. The shares rose to near their peak in October, but have since gone off about $5 to around $95 a share today.

The UBS E-TRACS Long Platinum Total Return ETN (NYSEMKT: PTM) is another lightly traded fund that trades around $19 today after bottoming in August. The 52-week high is near $24 a share.

The PowerShares DB Precious Metals Fund (NYSEMKT: DBP) follows the same general arc as the Physical Precious Metal Basket Shares, with a peak last March, a trough last summer, another peak in October, and slide of about $5 to a current price around $57.

The iPath DJ-UBS Platinum Total Return Sub-index ETN (NYSEMKT: PGM) is very lightly traded and like the Physical Platinum Shares has regained nearly all its losses from last summer, to trade at about $38 today.

In the near term platinum and gold will jockey for position as the highest priced precious metal, with gold likely to hold the lead most often as governments dither around with deficits and stimulus. Once those issues are settled (if?), platinum could easily push past gold and stay there.

Filed under: 24/7 Wall St. Wire, Commodities, ETF Tagged: DBP, featured, GLTR, PALL, PGM, PPLT, PTM