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Platinum Fundamentals

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Platinum Basic Fundamentals

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. 

Platinum is a very thinly traded market. 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.

Click here to contact a commodities broker with experience in the platinum market.

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