Investment demand key to platinum’s success

With the possible exception of gold, platinum should be the performer to watch among the actively traded non-ferrous and precious metals during 1990, says international securities firm Shearson Lehman Hutton. The level of investment, which is concentrated in Japan, should be the key to the market’s overall performance, say the company’s researchers.

The metal will sustain another small surplus of total supplies against industrial fabrication but investment demand should easily be able to absorb the material which becomes available.

The lower end of the expected range for the year will be defined, says Shearson, by the price at which it is profitable to return scrapped emission control catalysts for recovery. A floor price for the year of US$465-475 per oz. is predicted.

Two years ago, says Shearson, the market’s investment demand was substantially lower than any annual level in the late 1980s, at about 250,000 oz. During 1990, the surplus available for investment will be an estimated 160,000 oz.

Because the investment market is expected to exceed that of 1989 as the Japanese investors are again attracted by the precious metals sector as a whole and the platinum price regains some volatility, Shearson says the market should remain firmly underpinned.

The securities firm is forecasting an average price for 1990 of about $535.

In London last year, platinum averaged $510. In 1988, the metal averaged $522 and in 1987, $556.

South Africa is the dominant producer of the precious metal, accounting for some 80% of world output. The Soviet Union is in second place.

The total supply of platinum in 1989 (mine production in the non- communist world, scrap recovery and net trade with the Eastern Bloc) totalled about 3.35 million oz., Shearson says. Forecast total supply for 1990 is about 3.6 million oz.

A majority of the platinum supply is used in the manufacture of emission control catalysts for motor vehicles and the fabrication of jewelry.

The expansion in demand continues to be fuelled particularly by the increasing level of concern over the environment, Shearson says. The ever rising number of countries imposing control limits on car and light truck exhaust emissions is thus bolstering platinum demand.

The European Community and the U.S. are leading the way in this regard, and more countries are expected to follow suit. Shearson says current engine technology does not permit the use of anything other than platinum group metal-containing catalysts and although alternatives have been suggested, none has yet proved viable.

Use of platinum in jewelry is concentrated in Japan. Elsewhere, interest appears to be growing in Italy. In the U.S., a potentially large market, interest is flat.

Shearson’s forecasts for 1990 are based on an economic outlook that calls for a sluggish performance in the U.S. during the first half and some recovery during the second half (in part because of reduced interest rates). Europe’s industrial activity is expected to be lower than that of 1989, while Japan will register the smallest slowdown.