July 11, 2018 / 2:02 PM / 4 months ago

GRAPHIC-Platinum reels from speculative sell-off, persistent surplus

LONDON, July 11 (Reuters) - A surplus of platinum and demand concerns due to a dispute over global trade have fuelled a sell-off that saw prices of the autocatalyst metal hit their lowest in a decade, below the cost of production for many mines in top producer South Africa.

Used mainly in vehicles' emissions-reducing catalytic converters and in jewellery, platinum has slumped nearly 18 percent from a one-year high reached in January, also partly due to a stronger dollar.

Last week the metal crashed to $793 an ounce, its lowest since December 2008 and its weakest ever relative to gold , which is trading near $1,250 an ounce. Platinum later recovered slightly to around $840.

"Platinum looks incredibly cheap," said Mitsubishi analyst Jonathan Butler, predicting a rebound towards $900 an ounce.

"It's technically oversold and well below the cost of production for many South African miners. If we maintain these levels it will engender some kind of supply-side response."

The average production cash cost in South Africa - a measure of direct expenses such as labour, fuel and electricity - was $834 an ounce last year, according to analysts at Metals Focus, which expects a surplus of 40,000 ounces in 2018 in the roughly 8 million ounce a year platinum market.

Johnson Matthey predicts for this year a larger oversupply of 316,000 ounces, the biggest since 2011.

Helping to drive platinum down is a massive shift in speculative bets on lower prices, which outnumber bets on higher prices on NYMEX for the first time since 2001.

From a net long in March of more than 40,000 contracts equivalent to over 2 million ounces, fund positioning has swung to a net short of 345,100 ounces.

Another negative is the rising U.S. currency, which has made dollar-priced platinum more expensive for buyers using other currencies and therefore could undermine demand.

The higher dollar also means a lower South African rand , down some 16 percent since February. That has boosted the local-currency earnings of South African firms, which account for 70 percent of global mined platinum output.

Higher earnings mean less pressure to cut production and a more persistent surplus, said Societe Generale analyst Robin Bhar.

Platinum is also caught in broader turmoil triggered by fears of a trade war between the United States and its major trading partners, with investors calculating that higher tariffs could raise the cost of vehicles and slow global economic growth, reducing car sales.

Autocatalysts are the biggest source of demand for platinum and palladium. More platinum than palladium is used in diesel engines, whose sales have fallen since Volkswagen was found in 2015 to have cheated in emissions tests.

Platinum's break below an 18-month trading range and a long-term uptrend line has worsened the technical picture, intensifying the sell-off.

However, with prices stabilising above the 2016 low of $806.31, speculative investors are likely to rebalance their bets, creating upward momentum that will lift prices, Julius Baer analyst Carsten Menke said.

Reporting by Peter Hobson Editing by Pratima Desai and Dale Hudson

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