The ‘supply shock’ suffered by the platinum market as a result of South Africa's power crisis is likely to result in a deficit of 360 800 oz in 2008, down from 412 400 oz in 2007.

This is according to Virtual Metals Research & Consulting's VM Group and Fortis Bank, which on Tuesday released the fourth issue of The White Book, a bi-annual analysis of global platinum group metals fundamentals.

Mine closures late in January and restricted power supply to mines will see South African platinum production decline again this year, making 2008 the second consecutive challenging year after 2007 was plagued by safety stoppages.

South African mine supply is forecast to drop to 4.775 million ounces in 2008 from last year's estimated 4.909 million ounces.

Mine supply to fall by 247 500 ounces

The White Book predicts that overall mine supply will fall by 247 500 ounces in this year to 6.013 million ounces from 6.261 million ounces in 2007.

With desired demand outstripping supply, the platinum price has risen substantially already this year and is likely to continue to move higher.

"How high the price can go, and how sustainable platinum's gains are likely to be, will depend on how sensitive supply, demand and investment are to these much higher prices," commented Jessica Cross, CEO of VM Group.

"South African mine supply remains vulnerable to further power generating problems, although Eskom appears to have eased the situation temporarily. Mine supply from outside South Africa is constrained in the short term, although we are forecasting a rise in recycling volumes," she said.

Most of the market adjustment will therefore need to come from either lower consumer demand or increased investor dis-hoarding (stock sales).

Jewellery sales to be hit by high prices

"We believe jewellery sales will be hit by the high and volatile prices in the market, but overall demand will remain strong enough to see another year of deficit for platinum, at 360 800 ounces," Cross said.

According to the latest analysis, the palladium market will remain in surplus in 2008 but by 391 300 ounces, which is down sharply from more than one million ounces in both 2006 and 2007.

On the demand side, platinum's use in autocatalysts is expected to ease to 3.6 million ounces from 3.7 million ounces on substitution for palladium and weaker European car sales.

Palladium autocatalyst demand will fall slightly to 4.5 million ounces on weaker US car sales while jewellery demand for platinum is expected to fall from 1.7 million ounces to 1.5 million ounces as higher prices take their toll.

In the meantime, exchange-traded fund demand in both platinum and palladium is poised to set new records, said VM Group.

An additional 300 000 ounces of platinum and 400 000 ounces of palladium in 2008 are expected to go into investment and stocks.

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