Platinum outlook still bullish

The price of platinum may have slipped recently, but don't write off a rally.

Platinum prices slipped last week. The drop came as a five-month industry-wide strike in South Africa which accounts for around two-thirds of global platinum production ended with a new pay deal being agreed. But prices still look more likely to rise than to fall in the coming months.

For one thing, it will take at least three months to recover the lost ground, which amounted to around 20% of last year's overall output. And the episode will hasten the long-awaited restructuring of the South African platinum industry, says Xan Rice in the Financial Times.

That implies plenty of scope for further turbulence in industrial relations as well as a reduction in supply. Some higher-cost, labour-intensive mines are set to close in the next few years and mechanised, open-pit operations will gradually come to the fore.

The gap between supply and demand is set to hit around 1.2 million ounces in 2014, the biggest shortfall in almost 40 years.

Demand is rising Europe is the biggest market for diesel cars, which use platinum catalytic converters.In May, passenger car sales in the region grew by 4.5% year-on-year, and vehicle production has risen by 20% since 2010. So it's no wonder platinum is trading at an 11-month high of around $1,500 an ounce.

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