LONDON, March 26 (Reuters) - Platinum prices are expected to remain strong due to slower than expected supply growth from the world's biggest producer Angloplat and to robust demand, JP Morgan said in report.
Long-term platinum prices were seen reaching $540 an ounce, up from a previous forecast of $525, while the average platinum price for 2003 was increased by 3.7 percent to $643 an ounce.
But it said the immediate outlook for the precious metal, used mainly in jewellery and autocatalysts, would depend on the outcome of the war in Iraq.
"We do recognise...that a decisive outcome in Iraq, favourable to the United States, may well lead to a 'feel-good' bounce in the short term," Steve Shepherd, JP Morgan's Johannesburg-based analyst, said in a Platinum Sector Update released to clients on Monday.p
"In our analysis we assume the outcome will not be a negative one. Should we be wrong, the prognosis for the platinum sector could be bleak," Shepherd said.
Platinum was expected to enjoy robust growth from the autocatalyst sector, as exhaust emission control legislation becomes more widespread and stringent.
Shepherd also saw a bright future from electronics demand. The metal is used as a coating for data storage hard drives and in liquid crysal displays. Fuel cells would also take on a more important demand role later in the decade, he added.
However Shepherd said the metal's current price of around $650 an ounce was some 20 percent above his calculated sustainable level of $540/oz.
"We believe that its high price makes platinum vulnerable to substitution in the key demand segments of jewellery and autocatalysis," he said in the report.
Jewellery offtake accounted for 45 percent of demand in 2002, and the key, price sensitive Chinese jewellery market did not seem prepared to absorb prices much above $650 an ounce.
Looking to the autocatalyst sector, Shepherd expected car makers to react to a high platinum price by switching back to the relatively cheap and plentiful palladium.
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Shepherd said market expectations of slower production growth at Angloplat, supplier of 40 percent of global output, were keeping prices above a sustainable level.
"Compared to its (Angloplat's) original growth profile, latest management guidance means some 450,000 ounces less platinum reaching the market this year than was signalled in February 2001," he said.
He pegged total supply of platinum in 2003 at 6.4 million ounces, down seven percent on what it would have been had Angloplat delivered its initial growth plan.
That compared with estimated total demand of 6.6 million ounces, leading to a shortfall of 232,000 ounces.
Further ahead, Shepherd forecast that deficit falling to 92,000 tonnes in 2004 and then returning to a 107,000-tonne surplus by 2005.
"Metal prices will, in the end, match demand to supply ...Worryingly, high prices could lead to some substitution, which may be hard to recover," he said.
"So we flag a risk that two or three years out, when Angloplat finally delivers what it initially expected to, demand conditions may be weaker...possibly leading to a severe metal price crunch."