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Here’s what could push the price of platinum prices higher

The world stockpile of platinum is shrinking and looks set to fall further as investors hold off on selling and the threat of a miners strike looms, experts have said.

The supply of the precious metal will fall short of demand by 520,000 ounces by the end of 2016, as mining supply falls 3 percent and recycling rates slow, the World Platinum Investment Council (WPIC) warned in its quarterly report released this week.

Since the start of September, platinum prices have increased nearly 5 percent to $1,095 per ounce. Year-to-date, the metal is up around 23 percent.

Platinum bars
Tomohiro Ohsumi | Bloomberg | Getty Images
Platinum bars

"The overall picture for platinum in 2016, which has enjoyed a significant rebound in price over the course of the first half of the year, continues to be one of constraint and ultimately deficit in 2016," said Paul Wilson, chief executive officer of WPIC, in a press release.

Wilson also warned that there may not be enough platinum held by investors to meet this deficit.

"Not only has the stock level shrunk since 2012 – down more than 50 per cent over the period – but positive sentiment has reduced the propensity of holders to sell platinum to meet deficits," he said.

"We believe it is particularly worthwhile to consider the reduced likelihood of investor sales to meet deficits when considering this investment market in the medium term."

Another factor impacting the supply of platinum, which is in high demand from the jewellery and automotive industries, is the risk of strikes by mine workers in South Africa.

The mine workers' union, the Association of Mineworkers and Construction Union (AMCU), could break off wage talks with mining companies and call strike action, the Nikkei Asian Review reported this week.

"This week, AMCU declared disputes over wage demands with the three largest platinum producers," said Joni Teves, a strategist for UBS, in a note. "We think this declaration increases the likelihood of the strike beyond what market participants are currently pricing in."

Disruptions to platinum production caused by strikes, combined with lower supplies, could push metal prices higher.

"Estimated market shortfalls in recent years suggest that inventories have and are being drawn down," Teves said. "This would mean that there are less metal stocks to draw on if production is disrupted by strikes – in turn, the market could tighten quicker than anticipated, causing a material increase in platinum prices."

However, Teves added that any strike action would be short and have a limited impact on platinum prices.

One other factor affecting platinum prices include the strengthening of the South African rand, which makes platinum more expensive but supports producers and aids sentiment towards the metal.

The dollar has weakened 10 percent against the rand since the start of the year.

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