Supply of platinum to world markets

Is the platinum market in oversupply or undersupply? Two reports appearing in this column earlier this year, each dealing with the supply of the precious metal to world markets, seem to contradict each other.

Investment dealer Shearson Lehman Hutton, in its “Annual Review of the World Platinum Industry 1987,” reported the precious metal to be in fundamental oversupply and it appeared set to stay that way.

On the other hand, international metals company Johnson Matthey, in its annual offering titled “Platinum 1988,” reported a deficit in supply of platinum in 1987, the third straight year such a deficit has occurred. Johnson Matthey foresees a deficit recurring this year and possibly during the next two years.

Far be it for us to take sides on the issue of supply and demand of platinum, whose price in 1988 has been on a roller-coaster ride, ranging from the $450(US)-per-oz range in late February to almost $630 in early June. At press time, the metal was trading in the $520 range. About 80% of the world platinum market is supplied by South Africa.

It may be worth mentioning, however, that Shearson, in a recent quarterly report on precious metals, appears to temper its findings somewhat on oversupply of the metal. Summing up its interpretations of the current market conditions, Shearson writes that on balance “the market remains in a basic fundamental surplus but, as with gold, surplus that is expected to derive over the whole of 1988 can be said to be already absorbed.” The platinum market is expected to remain tight for the near future.

(Gold, which according to Consolidated Gold Fields has been in oversupply the past two years, seems to have been snapped up quite readily by the world investment community.)

In the same quarterly report, Shearson also revises upward its forecast average price for platinum for 1988, from $510 to $525, attributing the higher estimate to stronger investor activity.

Shearson’s next annual review of the platinum industry is due out towards the end of the year.

Gold bullion loans arranged by the mining industry since the beginning of 1988 are estimated to have exceeded four million oz (almost 125 tonnes), worth about $1.5 billion, and may be approaching 150 tonnes, according to the latest issue of “Precious Metals Bulletin” published monthly by Landell Mills Commodities Studies of London.

Gold loans, whereby a mining company borrows the metal (from a bank, for example) at a low rate of interest, sells it for cash and repays the bullion out of future production, grew in popularity after the equity route to finance new ventures was closed by last October’s stock market collapse. Notable loans arranged during the first quarter of this year included Newmont’ s million-ounce deal in the United States.

A steady stream of new deals has continued since the first quarter, the Bulletin reports, although typically these have been on a smaller scale, 30,000-40,000 oz or less in size and often associated with the financing of new ventures in Australia.

So far gold loans have been virtually unknown in financing ventures in developing countries, but with a number of promising projects now approaching the development stage, reports the Bulletin, a change is likely.

Efforts to boost nickel production in Cuba from Soviet-built plants appears to be paying off. Metals Week reports the country could turn out more than 40,000 tonnes of the base metal for the first time since 1981.

Cuba, which accounts for about 6% of world nickel production, appears to have finally got its Che Guevara plant on track. The facility, for which construction started 12 years ago and which is seven years behind schedule, will have a rated capacity of 30,000 tonnes per year when finished. Metals Week reports the plant’s current production rate is 10,000 tonnes; full production is not expected for at least another year.

All the problems with the Che Guevara plant notwithstanding, the Caribbean nation is planning to build yet another new nickel plant, at Las Camariocas. East European government money is being used to finance the new facility, which will also have a rated capacity of 30,000 tonnes.

Cuba’s reserves are estimated to be 19 million tonnes grading between 0.8% and 1.4% nickel.

Buying coins made from gold, silver or platinum is a relatively easy way for someone to invest in precious metals. Demand for such products appears to be brisk and mints around the world seem willing to meet that demand.

One of the newest such coins on the market (as of this month) is GoldCorp Australia’s Koala bullion coin, made from .9995% platinum. It is the first platinum bullion coin, according to GoldCorp, minted by a major precious metals producing nation. The new coins bear the image of Australia’s international mascot, the Koala bear.

The Royal Canadian Mint recently announced it will be introducing two new Maple Leaf coins, one to be made of platinum and the other of silver, to join the highly successful Maple Leaf gold coin on sales counters.