Production problems at platinum mines in South Africa and growing demand from car makers mean prices of the precious metal have potential to hit new highs, a fund manager at BlackRock told Reuters.
A power crisis in South Africa, which produces 80 percent of the world's platinum, and worries about shortages drove prices to a record high of $2,290 an ounce early in March. Prices are currently around $2,150 an ounce.
The acceleration in the rate of increase in prices was probably accentuated by the power crisis in South Africa, said Evy Hambro, a UK-based fund manager at BlackRock.
Platinum definitely has the potential to make new highs. The reason is most of the world's platinum producers are struggling to grow their production base at the same time as demand is rising.
The world's top platinum refiner and distributor Johnson Matthey said on Monday it expects prices to spike to $2,500 an ounce this year because of supply shortfalls and strong demand to make autocatalytic converters.
Examples of production problems include the world's third biggest platinum producer, Lonmin, which earlier this month said its platinum output in the second quarter fell 16 percent to 2.9 million tonnes from the same period a year ago.
Impala seems to be the only one meeting their targets with regard to production growth, Hambro said.
The world's second biggest platinum producer Impala Platinum and Russia's Norilsk Nickel are two of the biggest holdings in the World Mining Fund run by Hambro.
World Mining's assets at the end of April stood at more than $16 billion. The fund returned nearly 60 percent last year and more than 8 percent in the four months to end-April.
Platinum prices currently are up about 90 percent since the beginning of last year when the move to regulate car emissions gathered pace and the market started pricing in growing demand.
Many investors seeing a profit opportunity bought platinum via exchange-traded funds, adding to fears of shortages.
ETFs often buy the physical material and store it. That takes material out of the market, which last year saw a deficit of 480,000 ounces, according to Johnson Matthey, the world's largest platinum distributor.
Johnson Matthey expects the market to be in substantial deficit this year, but the company did not give any numbers.
If you want exposure to a change in the price of the metal then a physical holding is the way to go, Hambro said.
But if you want a slightly more exciting investment, then companies that produce the metal offer more.
They have the potential to grow production, discover more in the ground and grow the business as a whole. You get dividends from equities and there is a chance of mergers and acquisitions (M&A) activity.
Many fund managers are expecting the M&A boom in the mining sector to accelerate over coming months as companies try to secure future growth via acquisitions, which are thought to be cheaper than the costs of exploration for new deposits.
(Editing by Editing by Peter Blackburn)
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