Essay about Outlook for the Price of Platinum

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Outlook for the Price of Platinum

Introduction

The aim of this report is to forecast the future price of platinum using both macroeconomic and mircoeconomic principles. The factors influencing supply and demand of platinum will be looked at, and a regression analysis forecast done.

Factors Affecting Supply

As shown in graph 1, South Africa is the largest producer of Platinum (79%) followed by Russia (12%) and North America (5%). Supply from regions outside of South Africa has remained relatively stable over the past ten years, with any increase in supply primarily driven by South Africa. For this reason, only factors influencing South Africa’s ability to supply the market will be looked at

We expect global platinum supply
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In addition, it is possible that if skills shortage worsens, opportunistic laborers may take labor action, thus adding to the downward pressure on Platinum supply.

Electricity supply

With the advent of the electricity energy crisis in South Africa, we expect platinum supply to face further downward pressure. The National Electricity Supplier, Eskom, announced that it would only be able to supply the market with 90% of its needs until 2012. This announcement was reflected in the platinum price increase mid January 2008 from ……..to 2252US$/Oz as seen in Graph 2. The market has adjusted somewhat to this overshoot, largely due to the improving outlook on the crisis (Standard Bank, Commodities Research http://www.kitco.com/reports/, 20 March 2008) . Despite this, we are skeptical of Eskom’s ability to deliver sufficient energy supply, and thus are concerned platinum output may fall.

Safety Failures
Historically, safety failures have been responsible for intermittent mine closures and subsequent fall in Platinum Supply. Although we do not expect any increase in this failure rate, it is important to note that this trend is likely to continue in 2008 thus adding downward pressure on platinum supply.

Factors Affecting Demand
Demand for platinum globally is shown in Graph 3 with global use shown in Graph 4.. The largest consumers of

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