(Kitco News) - Platinum prices could be vulnerable to further losses in the near-term, although metals analysts remain bullish on the white metal in the long-term.
Since setting a high on April 14 of $1,471.50 an ounce, basis the New York Mercantile Exchange July contract, platinum prices are down 5%. As of 11:05 a.m. EDT, July platinum traded at $1,399.40.
Much of the gains for platinum came on the continuation of the strike by the Association of Mineworkers and Construction Union against the major South African platinum producers,
Platinum prices started to fall when gold had its big tumble on April 15, but the white metal extended those losses on news April 17 that South African miners Implats and Amplats sweetened an offer to the striking workers. July platinum dipped below $1,400 Tuesday and so far is holding right around that psychologically important level.
Bart Melek, vice president and head of commodity strategy at TD Securities, said platinum could be at risk for further losses if the strike ends. That has a greater likelihood of happening since the AMCU went to its members with the latest offer, some platinum analysts say.
Miners offered to raise basic wages to ZAR12,500 a month in five years, while the workers want to reach that level within three years.
Yet Edel Tully, metals strategist at
However, she said, prices could be vulnerable to further weakness because “with spec positioning very elevated, platinum is indeed at risk of a potential weighty sell-off.”
Looking at the Commodity Futures Trading Commission’s weekly commitments of traders legacy report for platinum, as of April 15, the large speculative net-long position was 44,967 contracts, the highest in a month. A more detailed look at that figure shows a very small gross short position of 6,568 contracts versus 51,535 gross longs.
Melek said speculators are “pretty long” not only according to CFTC data, but also when one takes into consideration the growth in physically backed exchanged-traded fund holdings.
Both Melek and Tully said they are watching platinum’s technical charts for support areas in case the market does lose further ground now that the metal pierced $1,400.
“Technically, there’s scope for a test of $1,382.22, the 62% retracement of the December-March advance, with any close below this an outright bearish development as it will confirm a new bearish trend in force with MACD (moving average convergence-divergence) below its zero line,” Tully said.
She said traders need to also be aware that unlike gold, platinum liquidity is much thinner, “especially during sell-offs when that exit door can get very narrow and price action becomes very erratic.”
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Buying Opportunities
Platinum may see short-term weakness if the strike is settled and if speculators want to lighten up on their Nymex futures and options holdings, but Melek said dips like these are buying opportunities for longer-term minded investors.
The fundamentals for platinum remain solid, he said. An improved global economy will support platinum and rising auto purchases in Europe compared to levels seen in the past few years will mean more platinum usage in diesel-powered cars. Melek said platinum sponge premiums are strong, signifying the industrial demand for the metal.
Further, platinum production was forecast to be in a deficit this year by many analysts and the strike has exacerbated that situation. Melek said so far 550,000 ounces of production were lost because workers downed tools.
James Steel, analyst at HSBC, said even if there is an agreement, it will take some time for mines to ramp up to full production. Steel said South Africa is in a holiday period and there is no full work week until at least mid-May, which means producers may wait until after the holiday period is over to commence production. Even so, Steel said, “it takes at least a month for producers to ramp up production and a return to full production would most likely not materialize until July.”
Melek said long-term platinum prices are likely to rise because with platinum prices at $1,400, it’s below production costs for most South African miners. That will be especially true if miners win wage concessions, he said.
“A push higher in wages will be a material increase. The cost curve will go higher,” he said.
By Debbie
Follow me on Twitter @dcarlsonkitco
