Commodity Online
Platinum made a surprising jump higher in mid-February, reaching at $1,087/oz on the 12th, 11% above its level at the start of the month and its highest since September 2008. While such a move could easily be reversed, there are a few solid reasons why Platinum has returned to favour.

On the supply side, quarterly reports from the mining houses showed that production is responding to lower prices, albeit relatively slowly. The cutbacks will help erode what might have been a significant surplus this year. Looking at demand, sales of new vehicles might be stabilising, albeit at very low levels.

ALSO READ: Indian buyers dump gold, embrace platinum

In the EU, the key region for platinum end use in autocatalysts, sales in January were 25% lower year-on-year for those markets that have reported -- about 80% of the total. This compares with falls of 19% in December and 27% in November. The actual level of sales, 765,575 units for those markets, has been relatively steady for the past three months. However 781,433 units were sold in December and 769,774 in November.

Car production remains gloomy. However, with output still being cut everywhere, as manufacturers try to clear abundant stocks. Nevertheless it looks like the PGM market is already pricing in a lot of bad news in this area. A more promising demand source in the coming year could be jewellery.

Platinum is less than half the price it was a year ago, and the price differential with Gold has narrowed to almost zero. Given that the gold jewellery market is over 30 times larger by volume, even a small substitution would make a big difference to platinum offtake.

Reports from India suggest platinum has been gaining market share in recent months, with one jeweller  as saying platinum accounted for 25%-40% of jewellery sales in January compared to a norm of 10%-15%. Are investors convinced?

ETF demand has picked up so far in 2009, with an additional 19,408 oz in the UK product and 25,409 oz in the Swiss version (as of 13th February). Furthermore, 19,062 oz of the latter came in the single week running up to 13th February, its second largest weekly rise since its launch.

Outlook
On 15th February 2008 platinum broke through $2,000/oz on supply woes. This year we need to content ourselves with a move higher, but at half that level, through $1,000/oz. We remain medium-term bulls on platinum, but short-term a pullback seems likely, perhaps even back below $1,000/oz.. Short-term London PM fix: $950/oz-$1,120/oz.

Courtesy: Fortis Metals Monthly

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