Internal Assessment In Economics - Article Commentary on " Green Curbs Hit Platinum Supply".

On 20 May, the metal was trading at about $540 an ounce.

"We would expect prices to remain reasonably firm", said Barry Davison, executive chairman of the world's leading platinum producer, Anglo American Platinum (Angloplat), in an interview with Reuters.

In 2001, the world's platinum producers stepped up output by 11%, but failed to keep pace with demand.

An 8% rise in demand during the year to 6.15 million ounces exceeded supplies, which were limited to 5.86 million ounces, according to the refining firm Johnson Matthey.

This year, South Africa's platinum output should grow by about 10%, the firm said.

Better alternative

In the past, platinum's sister metal palladium has been seen as a viable alternative for use in catalytic converters.

But erratic supplies have deterred many end-users from switching permanently to palladium.

Russia is a major producer of both metals.

The country produces 60% of the world's palladium and is the world's second largest producer of platinum, after South Africa.

Though the size of Russia's reserves are secret, they are believed to be massive.

However, this does not pose a threat to other platinum producers, Mr. Davison insisted.

"Nobody knows what the Russian stocks in these metals are.

"But I don't think the Russians are in a position to severely disrupt the platinum market, and it's certainly not in their interests to do so," Mr. Davison said.

Industrial commodity

Platinum has a much broader industrial demand base than most commodities.

Unlike gold, 85% of which is used in jewelry, 55% of platinum output is used in industrial products.

Angloplat produces about 40% of the world's platinum supply.

Edgars Tarkanijs

Internal Assessment In Economics

Article Commentary No. 1 (16.11.2002.)

Article" Green Curbs Hit Platinum Supply"

Source- "http://news.bbc.co.uk/2/hi/business/1998102.stm"

Text Commentary About Section "Supply and Demand"

Word count: 386

Legislation is an external factor that can affect the demand and supply of certain goods. Demand and supply are also affected by threats of military conflicts and economic system collapses. This analysis of the article will show the relationship between the supply and demand curves and prices, effects of the mentioned above circumstances on them and the ways in which suppliers and consumers can deal with such emerging hazards as

deficit.

Such an external factor as legislation causes an increase in the demand (the demand

curve shifts rightwards). Since the supply remains the same, the

price increases. In order to prevent the price increase the

supply has to be increased, but suppliers are not interested

in increasing the production as long as their supplied quantity is

sufficient to satisfy the demand and they can gain profit

because of the increased prices since they are sure that the

demand will not decrease, because they are also aware of the legislation.

Since platinum is a good which is used for reserving wealth,

the demand for it increases whenever there is a

threat of potential warfare. As long as the demand does not

exceed the supply, only a price increase is observed.

When the supplied amount is not sufficient to provide the

demanded amount of platinum, shortage emerges. In this

case suppliers must increase the production so the demanded

amount would be provided. Since platinum is a very scarce material

and a massive part of the already produced platinum belongs to Russia,

which is very conservative in changing its market policy even due to need of stabilizing

the world markets, it is very hard for the world producers to increase the supply rapidly.

Consumers have a choice- in this case the alternative is to buy palladium, but

since the producers of platinum claim a future increase in the supply of platinum,

consumers wait for these statements to come true.

The stated facts in the article are based on the economic theories and are all in accordance with the theories stated in the Alan Glanville's "Economics From a Global Perspective". Such relations of supply and demand are common market phenomena and are described by economic theories. The scarcity and increasing demand for platinum lead to a logical consequence- shortage and the producers are making the right decision- increasing the supply.