(Kitco News) - Platinumprices are sharply higher on a day when the world’s second-largest producerannounced plans to cut supply, and analysts say this may be just the catalystthe market needs to avoid falling any further through the recent lows.
Mostanalysts have characterized the platinum market as being in a surplus thisyear, particularly as consumption of the metal is dinged by less demand fordiesel-powered vehicles. Platinum is a critical component in catalyticconverters.
However,on Thursday, second-largest producer Impala Platinum - also known as Implats --said it plans to cut 13,400 jobs over the next two years. The company plans toreduce the number of shafts from 11 to six, with production falling to 520,000ounces annually from 750,000.
Resistancefrom the government and unions is expected in a nation with a high unemploymentrate. Sibanye-Stillwater aims to cut jobs over three years at acquisition targetLonmin, according to news reports.
Still,depending on what happens with investment demand, “it certainly could move themarket into a deficit,” said Bart Melek, head of commodity strategy with TDSecurities.
“Thisis a further sign that the platinum industry is finally reacting to the weakerfundamental environment seen over the past couple of years as diesel share ofEuropean power trains dropped significantly,” said a research note from BMOCapital Markets. “While the potential union pushback is yet to be seen, suchrationalization of supply may well mark the bottom in platinum pricing.”
Melekoffered a similar sentiment, although he cautioned this hinges on what happenswith the escalating trade war. Should this hurt demand for autos, then demand forplatinum would also fall.
However,Melek said, “all things being equal, we could have seen the worst of it [forplatinum prices].”
Asof 11:09 a.m. EDT, Nymex October platinum was $18.90 higher to $836.10 anounce, rising sharply even though precious-metals-sector leader gold was lower.In mid-July, the October platinum contract fell as far as $794.50 after havingtraded above $1,000 an ounce in January and February.
GeorgeGero, managing director with RBC Wealth Management, also commented that the Implatsnews could be the catalyst that the market needs to have finally established abottom. One thing in the metal’s favor, he added, is that most supply comesfrom South Africa, thus demand presumably would not be hit by direct tariffs inthe trade war between U.S. and China.
“TheChinese continue to use it, but it’s not something they purchase from the U.S.directly,” Gero added.
By Allen SykoraFor Kitco News
Follow @AllenSykora