Jubilee is in the platinum market for the long haul and its financial and production planning is based on what it believes will be long-term market trends - that demand for the metal will remain firm.
Though platinum and palladium have an investment following that can underpin prices, investment demand is a lesser force in the market than are industrial and jewellery demand.
Essentially the fundamentals for the two positive projections are similar for both of the principal platinum group metals - strengthening industrial demand as global economies recover and grow. Demand for both metals can be expected to increase as governments impose increasingly demanding environmental requirements on the automotive sector.
Technological change clearly cannot be ignored. Although developments such as electric or hybrid auto drive trains receive much coverage, the world is decades away from shedding its relationship with vehicles powered by oil derivatives. Nevertheless, in the motor sector, platinum is steadily losing ground to its cheaper co-metal palladium in autocatalysts for petrol-driven cars. While platinum demand for diesel-powered cars in Europe and heavy-duty vehicles in North America is expected to increase, growth in the car market is swinging towards China and other Asian markets where petrol is preferred to diesel.
The shift can be expected to manifest itself more strongly in 2011. Meanwhile, the factors, such as cash-for-clunkers programmes that helped US and European car sales in the earlier parts of 2010 have run out, contributing to a temporary weakening of demand for new cars as 2010 progressed and as 2011 got under way. But this ignores the fast-growing demand by Chinese car buyers - a demand growth that helps offset slower growth in western economies.
In other industrial applications, platinum cannot be as easily replaced by palladium. And while higher prices have sharply curtailed demand in the jewellery sector, cheaper palladium remains less favoured than platinum.
But there have been specific near-term supply-side factors at play. According to Johnson Matthey, a leading precious metals refiner, total newly-mined platinum production at fractionally more than 6-million ounces was lower in 2010 than in 2009. On the other hand, supplies of recycled metal have been sharply higher in the wake of the cash-for-clunkers programmes designed to lift sales of new motor vehicles in Europe and North America. This sort of disruption that can briefly affect the market is unlikely to persist for any great time. Supply of the platinum metals will eventually return to a stable balance between newly mined and recycled metals.
While world economies and financial markets have been in turmoil, investment demand continued to be spurred by the very factors that have pushed gold - fears of euro sovereign debt defaults, fears of a collapse of the dollar, fears of inflation and low interest rates that keep the cost of holding ‘sterile’ metal low. These fears and considerations are unlikely to dissipate for a few years.
These are the very factors that are generally said to motivate investment demand for platinum. And yet Johnson Matthey points to some differences - European platinum ETFs are expected to be net sellers of physical metal in 2011, offsetting to an extent increased purchases by counterparts across the Atlantic.
To a considerable extent, prices may have been driven by the dollar’s performance and investment interest in recent months, rather than by the fundamentals of supply and demand. However these fundamentals will eventually reassert themselves, resulting in less price volatility. As that develops, successful platinum producers will be those with costs that are way down on the industry’s curve - a target for Jubilee.