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Commodity Trading: Platinum Futures

Demand / Consumption Considerations

On a relative mined basis, Platinum has many more industrial uses than either Gold or Silver. Platinum plays a crucial role in the modern technological society. It is estimated that 20% of all the goods manufactured today either contains Platinum or is produced using Platinum containing equipment. The major industrial users of Platinum are the automotive, electronic, chemical, jewelry, dental and glass industries.

Because of Platinum's catalytic qualities, it is used in catalytic converters by the automotive industry. Catalytic converters are used to take toxic gasses produced using unleaded gasoline and turn them into carbon dioxide and water. Demand for Platinum from the automotive industry accounts for roughly 80% of the use of Platinum each year. The automotive industry is the fastest growing user of Platinum. This trend is expected to increase as Platinum is an integral part of the emissions system of an automobile and stricter pollution controls are being put on auto manufacturers every year. Platinum faces some competition from Palladium in the automobile industry, but Palladium based catalytic converters is only more effective on diesel fuel engines. Because the demand for diesel fuel automobiles is growing in Europe, the demand for Platinum from European automobile manufacturers has been slowly decreasing in recent years. Talk of the automobile industry would not be complete without mentioning that almost every year rumors circulate of a new Palladium based catalytic converter to be introduced. The sharp sell-off associated with these rumors has typically been opportune times to establish long positions in the Platinum market.

The second largest consumer of Platinum is the chemical industry. Platinum is used in the manufacturing of paints, acids, fertilizers as well as explosives. Large Platinum vats are constructed for the manufacturing of acids, as no other metal has Platinum's resistance to corrosion. Platinum is also used in the oil refining processing since it is able to reduce levels of aromatics and sulfur in heavy oil products like diesel and Heating Oil.

The electronics industry is an increasingly important player in the Platinum market. Probably the fastest growing consumer of Platinum recently, this segment uses Platinum in everything from electrical components to computer chips and semi-conductors.

Platinum is also used by the dental industry in the construction of not dental equipment but in the construction of fillings and the like. Due to the dangers of Silver and mercury fillings, the use of Platinum based fillings are growing and are expected to continue.

Platinum became known as "white gold" when Platinum began being used in jewelry fabrication in the 19^th century. Because of Platinum strength and luster it makes the ideal setting for diamonds because the rich white color of Platinum tends to increase the sparkle and the appeal of precious stones. Because Platinum is stronger than Silver, Platinum settings can be smaller and thinner allowing more light to refract off of the stone. Though Platinum's use in jewelry has decreased dramatically in the last decade, Platinum based jewelry is still more popular in Japan than Gold.

The first real industrial use of Platinum was by the glass industry, which today is still a major consumer of Platinum. Platinum today is used to make everything from LCD lights to picture tubes and fiber optic cables.

Platinum is expected to get a major boost in the next decade because more electric automobiles are to be manufactured. Platinum based fuel cell technology is being promoted as the best alternative for electric cars. By industry estimates, the demand for Platinum in fuel cell technology could be 3 to 4 times greater than that for catalytic converters.

Because of Platinum's many industrial uses and its relative scarcity, Platinum's supply/demand balance is very fragile. Platinum, more than Gold and Silver combined, is especially vulnerable to interruptions in supply, as the supply/demand relationship is extremely tight. Given this, any interruptions in supply, especially those caused by political uncertainty in South Africa should be treated with extreme caution and the resulting rally should prove to be extremely long lasting and very powerful.

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