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JUBILEE PLATINUM PLC (JLP)

3,95 GBp 
+2,60% | +0,10
 15/10/2015 17:29







LONMIN (LMI)

36,75 GBp 
+5,76% | +2,00
 15/10/2015 17:35

Should You Buy Lonmin Plc And Jubilee Platinum PLC As Metal Prices Surge?

By Royston Wild - Thursday, 15 October, 2015

The sudden rise in platinum prices since the start of October has been nothing short of phenomenal. From plunging to seven-year troughs of $908 per ounce late last month, the white metal has gained 10% in just over a fortnight and was recently sitting back above the $1,000 marker.

Investor sentiment for platinum has returned as further delays in Federal Reserve rate hikes have dented the value of the US dollar. Indeed, the Dollar Index -- a measure of the greenback versus a basket of currencies -- struck seven-week lows just this week. In addition, platinum has been caught in the gold price updraft, the yellow metal having advanced 7% during the past couple of weeks, too.

With buyers now charging back into the precious metals markets, could now be the time to pile back into embattled platinum group metal plays Lonmin (LSE: LMI) and Jubilee Platinum (LSE: JLP)?

Prices primed to pump higher?

Well, Bank of America-Merrill Lynch certainly feels that platinum could be in for strong price gains in the months and years ahead. The broker expects an average price of $1,065 per ounce for 2015 to advance to $1,100 next year, before marching to $1,250 in 2017 and $1,425 in 2018.

Bank of America believes that Chinese platinum demand has now stabilised, and fully expects physical off-take from the jewellery and autocatalyst segments to rebound strongly next year, pushing the market into deficit.

However, the broker acknowledges a range of factors that could keep platinum prices under the cosh. Adding to the risk of rising prices on jewellery demand, and lower sales to European buyers, Bank of America notes that "producers in South Africa need to show more production discipline," adding that "putting more ounces into the market at lower cost is not a recipe for success."

Lonmin responded to such calls in July by announcing it was reducing production by some 100,000 ounces each year by 2017, achieved through the closure of its Hossy and Newman shafts in South Africa. And Glencore announced just this month it was closing its Eland mine in the country.

Auto demand set to dive?

Although a welcome step in the right direction, I believe the platinum market remains a risky bet at the current time.

As Bank of America notes, demand from Europe remains a critical factor for metal prices looking ahead. And with the fallout of the Volkswagen emissions-rigging scandal threatening the future of the diesel engine -- 48% of platinum demand comes from autocatalyst builders -- sales to this key European-centric market could nose-dive in the years ahead.

On top of this, the likes of Lonmin also face the ongoing problem of breakneck cost inflation. Lonmin itself has taken the decision to concentrate on immediately available ore reserves for mining activities, but the issue of rising wages, power tariffs and general operational costs remain a millstone around the industry's neck. When you throw in the potential for fresh strike action -- a common problem in South Africa's mining sector -- costs are in danger of spiralling still higher.

Platinum prices have risen as quickly in recent weeks as they had previously fallen, reflecting the volatile nature of market sentiment at the current time. Should further disappointing data emerge from China in the near-term, I believe the metal -- and consequently shares in Lonmin and Jubilee Platinum -- could be sent hurtling lower once again.

But regardless of whether you share my cautious take on the platinum market, I strongly recommend you check out this totally exclusive report that identifies a wide array of big-cap winners waiting to kick-start your investment income.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

EURO trend by Sara @ MarketWatch

Why more ECB QE won’t kill this euro rally

Published: Oct 15, 2015 3:10 a.m. ET

SARASJOLIN

Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

All the stars are aligning for a weaker euro: Deflation is knocking on the eurozone’s door, there’s been a string of lackluster economic data and the European Central Bank is increasingly expected to launch more QE.

Yet, the shared currency is having none of it. Over the last three months, the euroEURUSD, -0.3573% has risen nearly 5% against the dollar to trade around $1.1441 and tacked on 5.8% against the pound EURGBP, -0.3776% to £0.7425.

This comes even as several analysts earlier in the year proclaimed 2015 would be the year when the euro slumped to parity with the dollar for the first time since 2002, following an aggressive round of ECB easing and expectations of a Federal Reserve rate hike.

But according to some currency strategists, that the euro has climbed instead of weakened isn’t a surprise.

“If the euro can’t go down on the Volkswagen story, and the euro can’t go down on the Greek story, it should be telling you something,” said David Bloom, global head of FX research at HSBC.

“The Fed is not as hawkish as people thought [it] would be and the ECB is not as dovish as people think [it] should be,” he said. “The monetary-policy differential is actually closing and that’s favoring the euro.”

HSBC in late September raised its 2015 year-end forecast on the shared currency to $1.14 from $1.05 and lifted its year-end 2016 forecast for the euro to $1.20 from $1.10.

The euro hit a 12-year low around $1.05 in March, weighed down by the launch of the ECB’s €1.1 trillion ($1.26 trillion) quantitative-easing program and expectations a U.S. rate hike was imminent. In other words, a sharp divergence in monetary policy that usually propels the dollar sharply higher, while hammering down the euro.

Markets still see this divergence playing out in the months ahead. Investors expect the ECB to announce further easing measures by year-end and anticipate the Federal Reserve will hike interest rates in December or early 2016.

However, Bloom said there’s little chance this will serve to weaken the euro, as these moves have already been largely priced in and the ECB is running out of large-scale easing options.

“I think [ECB President Mario Draghi] used his big bazooka and he now looks in his cupboard and he’s got a small pea shooter,” the HSBC strategists said.

“The ECB artificially suppressed the currency through QE, but that’s coming to an end... They may do something or make QE open ended, but they will struggle to be ultra dovish," he added. “We need some big stuff here for the euro to move. Not only do we not see that happening, we also think it’s not possible. There are some rules and regulations they set themselves that make it very difficult.”

Simon Smith, chief economist at FxPro, said he doesn’t see how more ECB easing would push the euro dramatically lower like it did in March.

“In the early days of QE, it impacted currencies massively. The dollar was going lower and there was a big bang for your buck with QE,” he said.

“But for the eurozone, because they came so late to the party, there’s a different relationship between QE and the currency. It’s pretty weak. It’s simply because of lower, diminishing returns. You’ll get less for the more you do something,” he added.

Smith also noted that the key ECB interest rate is already close to zero, which has helped push German two-year bund rates substantially into negative.

“It’s difficult to squeeze those lower,” he said. “Already in some countries they are struggling to find bonds to buy. It would have to be even more unconventional means by which they undertake QE.”

Low interest rates usually are followed by lower exchanges rates, because it decreases the demand for the currency.

However, not everyone is bullish about the outlook for the euro. Goldman Sachs has stuck to its forecast that the shared currency will fall to 95 cents next year. Morgan Stanley, in its latest FX outlook, saw the euro at parity with the dollar in fourth quarter of 2016.

At Société Générale they are currently reviewing their forecast of euro-dollar parity in the first quarter of next year on the back of delayed rate-hike expectations in the U.S. However, Vincent Chaigneau, head of FX at the French bank, explained the euro will likely struggle to break above its August peak of $1.1715.

“As the euro rises, speculation about further ECB QE and/or a deposit rate cut will be rising too, which should cap the euro. So I don’t think that’ll run very far, but for now EUR/USD may be heading toward those resistance levels,” he said.