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Automaker uncertainty bad news for platinum

Posted on 2012-11-06, By A-Best Staff
GM's struggles hit platinum market

GM's struggles hit platinum market

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum declined last week; and continued the trend this Monday as uncertainty over the future of US automaker GM put the metal’s near future demand outlook into question. On Monday, NYMEX July platinum was down $30.90, or 2.6 per cent, at $1,153.10. Spot platinum declined to $1,146.50 an ounce, down 2.3 per cent from its late Friday quote.

General Motors announced on Monday it would cut debt, close plants, slash jobs and drop the Pontiac brand as part of a sweeping restructuring that would see the automaker emerge under the ownership control of the U.S. government and its major union.  Last week, rumours surfaced regarding the potential filling of Chapter 11 for the auto giant.

In the current state of the economy, the auto industry is unable to lend support to platinum; but the metal may get some relief from rising safe haven appeal.  Interest in platinum as a safe haven investment in tandem with gold is likely to intensify in 2009 as uncertainty in the global economic and financial system is expected to persist into 2010.

Last Thursday, Metals consultancy GFMS released its Platinum Survey providing an outlook for the metal for 2009, and a recap of 2008.  In 2008, total platinum demand eased 2 per cent to 7.794 million ounces, while supply from mines and scrap, both jewelry and auto catalyst, was little changed. The largest element of demand, buying by the automotive industry, fell 8 per cent to 3.814 million ounces last year from 4.139 million the year prior. Jewelry demand stood at 1.646 million ounces in 2008, down from 1.872 million a year before.  

Jewelry buying, especially in China, picked up late in the year as prices fell.  On the supply side, mine output declined for the second year running to 6.151 million ounces from 6.583 million, and is now down 12.4 per cent from its 2006 level. Of the two largest platinum mining countries, South African mine production was down 8 per cent to 4.671 million ounces, while Russian output fell 9 per cent to 835,000 ounces. A significant addition to supply came from a surge in jeweler scrap, which jumped 68 per cent to 910,000 ounces from 543,000. Auto catalyst scrap also rose to 998,000 ounces from 921,000.

Company News

Lonmin is already reaping the benefits of the radical restructuring program the company embarked upon late last year. Lonmin announced last Thursday that it had increased quarterly production and refinanced much of its near-term debt.  The company, which missed targets last year as it fought a hostile bid from Xstrata, reiterated its target of producing about 700,000 ounces of platinum for the year to September, after producing 318,200 ounces in the six months to March. Production rose 40 per cent in the last quarter compared with the prior period.  The rise in production came two months after Lonmin said it would cut 5,500 jobs in South Africa and shut down some operations at its platinum mines.  Soon after announcing the plans, the company said its strategy for the restructuring was a deep, swift cut. Investors seemed to agree that the company was positioned on a leaner operational footing, with the shares closing up 118p at £13.57.

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