Brighter outlook for platinum as demand rises and gold loses its lustre

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Could platinum be a better bet than gold in 2013? Despite bullish analysts' predictions on gold for this year, the precious metal had a lacklustre start. In contrast, the outlook for platinum may be brighter.

The platinum-gold spread or the difference between the price of gold and platinum has been narrowing from above $100 a troy ounce.

Spot gold is now at $1,662.80 an ounce and spot platinum at $1,632.25. This means the spread has narrowed to just $30.50. There is a real chance that the price of platinum could move above that of gold in the next few months.

"Platinum markets have started the year positively and could be, along with silver and palladium the commodities to watch in 2013, especially if industrial demand continues to improve," says Kieron Hodgson, an analyst at broker Charles Stanley (LSE: CAY.L - news) .

The platinum industry is in the middle of a significant shake-up. Following on from violent strikes at some South African platinum mines last year , Anglo American Platinum, or Amplats, is on the verge of announcing a comprehensive business review .

Amplats is the world's largest producer, with South Africa mining about 80pc of the metal globally. Amplats is 77.3pc owned by London-listed miner Anglo American.

The most likely consequence will be lower production as high-cost mines are mothballed.

Platinum mining is a very expensive and dangerous business. Deposits tend to be very deep and temperatures are high, which means costs between mines can vary significantly and some can be very expensive to operate.

However, with Anglo American (LSE: AAL.L - news) being the largest private sector employer in South Africa, mine closures are a very politically sensitive issue.

Indeed, the political backdrop is getting increasingly tense. Last week credit rating agency Fitch downgraded its rating on South Africa to the second-lowest investment grade.

"Social and political tensions have increased as subdued growth, coupled with rising corruption and worsening government effectiveness, have constrained the government's ability to improve living standards, reduce the 25.5pc unemployment rate and redress historical inequalities as rapidly as the population demands," Fitch said.

Still, production cuts are expected and, in addition, platinum prices could rise as last year's strikes have already hit supply. Last year's events will cause a 12pc drop in supplies of the metal to 4.25m ounces, the latest Johnson Matthey (LSE: JMAT.L - news) platinum review said.

Professional investors such as hedge fund managers are getting increasingly bullish. They have increased their "net long" position in New York-traded platinum futures, according to the latest data from the weekly Commodity Futures Trading Commission's Commitment of Traders report. This is a 5pc week-on-week increase.

There has also been lots of speculation that Amplats could sell its higher cost mines. This is very unlikely.

The mines are likely to be put on care and maintenance rather than sold, because now is not the right time. Why on earth would a company sell at what could be described as the bottom of a market?

Credit Suisse (NYSE: CRP - news) is forecasting that closures could take more than 200,000 ounces of supply out of the market.

"The time frame over which the cuts are executed is the unknown," Credit Suisse says. "The market wants immediate mine closures, but there is a risk that a less explicit plan is released aiming to keep production at a designated level and make more gradual high cost mine closures."

This would be a negative for the platinum price as the market is expecting immediate shutdowns.

However, it is likely that Anglo American's newly appointed chief executive Mark Cutifani would like to take decisive action.

If he does, the platinum price could be the precious metal to back in 2013. GW

= Iron Ore =

Iron ore has climbed more than 80pc from its September low of $87 (£54) per tonne, to near $160 but some see the end in sight. Amid rising hopes for Chinese demand, the country's steel mills have been restocking iron ore a key steel-making ingredient which has supported the price. However, it has now "overshot", say analysts at Macquarie. "The iron ore rally is likely to lose steam as Chinese re-stocking approaches an end," they warn. "We remain confident in our $130/t iron ore forecast for 2013E [estimate] but the current price spike appears temporary, if for no other reason than a meaningful 2H [second half] supply response is likely." ER

= Boost for shipping industry =

A closely-watched index of shipping rates saw last week saw its biggest weekly increase in two months, offering cheer to an industry which has seen earnings plummet.

The Baltic Dry Index, which tracks the rates charged to ship bulk commodities, also gives an insight into the health of international trade and, as a consequence, the global economy.

It last year averaged 920 points, its worst performance in a quarter of a century, as weaker world demand coincided with an oversupply of vessels ordered during the commodity price boom. The index swung dramatically over the 12 months, to close at 699.

However 2013 has started encouragingly , with the index up by around 8pc for the year so far at over 750, following a steep slide in December.

The pick-up has been driven by higher rates for the vast capesize ships which are used to carry iron ore, as the steel-making ingredient enjoys a rally which began in the second half of last year.

Aside from a Germany-based freight trader, Rio Tinto (Xetra: 855018 - news) , the iron-ore focused mining giant, was the second largest charterer of vessels last year, according to a Bloomberg analysis of shipbroker data.

None the less, watchers caution that the Baltic index still remains in the doldrums by historical comparisons and that the oversupply of ships will remain a concern for the industry. ER