Gold's Neglected Cousin to Face Supply Squeeze

Platinum bars
Oliver Cleve | Getty Images
Platinum bars

A record deficit in platinum supplies is set to push prices higher, as unrest sweeps the South African mining industry and demand is boosted by the auto sector and a new exchange traded fund (ETF), according to HSBC.

Platinum, which has been influenced by the wild swings in the price of gold since April this year, hit a six-week high of $1,531 earlier this month following the "highly successful" launch of a new physically backed ETF. According to James Steel, chief precious metals analyst at HSBC, prices will rise further over the next two years, as the risk of South African mining strikes weigh on output.

(Read More: South Africa Risks Downgrade as Rand Tumbles)

But Steel also cut his price target on the metal because platinum had been influenced more than he had anticipated by the sharp swings in the price of gold.

Steel's new average price forecasts for 2013 is $1,580 down from $1,710 forecast previously and for 2014 it's $1,725 down from $1,800 previously. Based on platinum's traded price of $1448 on Monday, that's a forecasted 9 percent gain this year.

Platinum prices have fallen around 17 percent from the highs in February, as investors sold their gold positions. While both commodities are considered precious metals, platinum has far greater industrial uses.

(Read More: 'Indiscriminate Sell-Off' in Miners Creates 'Bargains')

"A rotational shift out of commodities and into equities also took its toll on the platinum market," Steel said.

He predicts the metal will peak at $1,875 by 2015, before falling back to a more steady level of $1,825 thereafter.

"The launch of the South African ETF in mid-May has already attracted a whopping 371,000oz of platinum demand to date. This is more double the growth in the rest of the platinum ETFs combined this year," he added.

(Read More: Why Gold's Fall Is No Big Deal for South Africa)

Jewelry demand remains strong, and if industrial or auto demand pushes above forecasts, Steel said platinum prices would rise. At the same time, limited output is likely as further strike action in South Africa, the hub for global platinum production, could hit supplies.


"Widespread strike action and other stoppages in South Africa greatly reduced domestic platinum production in 2012. According to Johnson Matthey, production fell almost 16 percent in 2012," said Steel.

(Read More: Gold Rout Prompts Shift to Diamond Miners)

"The possibility exists for further disruptions to production in South Africa. Additionally, the long-term challenges of low platinum prices make a sizable amount of current production uneconomical. This leads us to believe that higher prices are necessary to sustain production longer term."

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave