Larry Myles: Forecasting PGM Prices for 2008 - Premium Exploration

Larry Myles Reports: Forecasting PGM prices for 2008 - Premium Exploration

Are the PGM’s overheated – or just getting started?

A chart – like a picture - is worth a thousand words.

One look at these charts and one would assume that the smart money is using only five words - ‘overheated prices….definitely overheated prices’. Or are they?

I do not think this is that hard a call. Whether it is an individual Investor working his own due diligence process, or the research department of a global financial institution, there is one word that pops up immediately – DEFICIT.

Although when looking at palladium, this is not officially the case at present. I believe it will only be a matter of time before we will be experiencing supply side issues. But when checking the stats on platinum and the elusive rhodium, there is no mincing of words or any debate – there is not enough to go around.

Platinum: It appears that prices are going to move higher. The market remains bullish toward all precious metals, but with supply side issues looming over platinum production and the demand for the metal rising, look for an increase in prices.

Platinum supply side:

• A decrease in the supply coming out of South Africa indicates platinum production in that country will fall to 4.85M ounces. Anglo Platinum has recently announced an anticipated shortfall for 2008 of 150,000 ounces.
• Russian supply has been estimated to reach 850,000 ounces, with the rest of the world’s production bringing in an additional 600,000 ounces. Recycling may add 950,000 to the supply side.
• Total supply of 2008 platinum estimated at just over 7M ounces.

GLOBAL PLATINUM SUPPLY

Platinum demand:

• Automotive demand (catalytic converters) is expected to reach 4.35M ounces, and other industrial usage expected to add 1.8M ounces.
• Jewellery expectations will either hold steady, or experience a slight decline to 1.45M ounces.
• As platinum becomes increasingly scarce, investment demand is expected to modestly increase to 280,000 ounces.
• Total platinum demand estimated at 7.60M ounces.
• Factoring the 2007 shortfall (estimated 265,000 ounces) in production, the accumulated deficit will be approximately 660,000 ounces by the end of 2008.

GLOBAL PLATINUM DEMAND

Crisis in South Africa:

Using available data and factoring in the troubled electrical power woes in South Africa, it appears that by year-end 2008 we could be looking at a shortfall of over 500,000 ounces of platinum. South Africa produces approximately 75% of the world’s platinum, upwards of 35% palladium and 80% of the planet’s supply of rhodium.

Power supply issues in South Africa have drastically altered the landscape for platinum group metal prices. Being able to switch on the lights in South Africa is turning into an adventure – with the government mulling over strict power rationing while they grapple with how to generate more electricity. In turn, this has stalled new mine development as it has been projected that just in the platinum sector alone, they will need to increase their consumption of electricity by 115% over existing levels.

As it stands – and at best, the PGM producers currently have only 90% of their normal allotment of electricity. With that in mind, a decrease in power will translate into a decrease of production.

Looking ahead to 2009, the demand for platinum is expected to