Electricity Up Platinum Down

There appears to be a Platinum shortage going on. Naturally prices have been rising over the past few years.

Platinum prices have dropped by almost 20% in daily trading over the past three weeks (to $1,565/troy ounce on Tuesday). But, for the year, the price of platinum, which is used in catalytic converters for motor vehicles, they will average $1,970, or 51% more than it did in 2007, according to the latest forecast by Natixis Commodity Markets of London. The outlook for 2009 is an even higher $2,250/oz.

Some other analysts have suggested that platinum this year and next could fall closer to the $1,303 average price of 2007 because of the sharp fall in motor vehicle sales in North America and Western Europe. The Natixis analysis isn’t so bearish because its analysts expect supply shortages from the biggest platinum producers due to the South African national power crisis. “We do not believe that the power-related production problems in South Africa have been resolved,” says the report. If that’s true, then production problems will continue to plague Angloplat and Impala Platinum, the second-largest producer.

In fact, Bloomberg today is reporting that tens of thousands of workers went on a national strike over rising energy bills. The Congress of South African Trade Unions, or Cosatu, called the one-day walkout after the electricity regulator allowed state-owned Eskom Holdings to increase power prices 27.5% to fund a badly needed $44 billion expansion.

Well we have seen a dip in prices in the middle of a secular rise. And who is the blame for this mess? The usual suspects. The geniuses in the South African government. Funny thing is they admit it.

JOHANNESBURG, Feb. 8 -- President Thabo Mbeki apologized Friday for his government's failure to prevent crippling power outages across South Africa and warned that restoring a reliable supply of electricity would require new projects and major cuts in usage.

"We face an emergency, but we can overcome the problems in a relatively short period," Mbeki said in his televised state of the nation address, delivered in Cape Town at the annual opening session of Parliament. "This situation has precipitated the inevitable realization that the era of very cheap and abundant electricity has come to an end."

We had better get the NIMBYs and the Just Say No enviros out of the way or the USA could be facing similar problems. Electrical shortages take a long time to develop and a long time to resolve.

What will happen if we don't get a move on? The same thing that has happened in South Africa. A shortages and sharp increases in prices. Which is not only bad for consumers. It is bad for business.