A disconnect between developments in global financial markets and the real economy has occurred, according to David Brown – CEO of mining giant Impala Platinum. In a speech at the company's annual general meeting yesterday, Brown stated that he thought platinum’s current spot price of around $1,593 per troy ounce represented an undervaluation of the metal. He reached this conclusion after a recent visit to Japanese platinum and automobile traders to assess current sales activities. In the case of copper this view is shared by a growing number of market analysts. Mining giant Freeport-McMoRan has been forced to cut production at its Grasberg mine in Indonesia due to strikes. Analysts are warning that this could result in supply shortages in the copper sector in the coming months.
Although he thinks that at its current price, platinum is clearly undervalued, Brown believes that platinum will be stuck in a trading range between $1,450 and $1,650 per troy ounce for the next two to three months. Gold's premium over platinum still amounts to around 10% after the sharp price correction in precious metals markets. The premium of one troy ounce of gold has never been as high in history, indicating growing tensions in financial and credit markets. Brown added that the debt crisis has led to investors preferring gold over platinum. However, the platinum price has upward potential following its correction phase, with Brown forecasting platinum to rise to $2,000 per troy ounce by the end of 2012. His forecast was not only supported by the continuing capital flight into the precious metals sector from investors concerned about inflation, but also based on better than expected business activities among platinum and automotive traders. The order books of most dealers are still filling up, meaning that the demand for platinum is rising. Similar statements were made by the world's third-largest platinum producer Lonmin in early October. According to Lonmin, the demand for platinum is picking up again and will continue to increase in the coming quarters. Platinum has yet to equal or exceed its pre-Lehman early 2008 price of over $2,000 per ounce.
Meanwhile, strike activities are escalating further at Freeport-McMoRan's Grasberg mine in Indonesia
The global demand for copper remains high and – besides Indonesia – markets have had to be prepared for growing industrial tensions and strikes at major South American mines. Peru, Bolivia and Chile in particular have been hit by violent protests and riots at mines in recent months, with miners demanding better pay, improved medical care and better working conditions. After Indonesia's strike actions crippled PT Freeport Indonesia (Freeport-McMoRan's Indonesian subsidiary), the mining giant had no other option than to curb production and stop shipments of concentrates to its customers overseas.
Roman Baudzus
Originally published on Goldmoney.com here
