Platinum’s soaring price is making the precious metal such a hot commodity that it is spawning a whole new line of thievery: slipping under parked cars to steal catalytic converters for the few grams of platinum that they contain.

As platinum hit a historical daily closing high of US$2,145 an ounce on Feb. 19, vs US$500 an oz. in 2000, police in the U.S. are reporting a surge in “catcon” thefts from car lots. Easily pried from their housings, the emission-controlling catalytic converters fetch up to US$200 each in scrapyards.

Already reacting to tight supply/demand fundamentals, the platinum market received an unexpected jolt in late January, when some of the world’s largest mines in South Africa — which provide 70%-80% of global platinum supply — were forced to close for five days as a result of power disruptions. Platinum shot up by US$200 an oz. within a matter of days and has climbed further since, even though the mines are back up and running.

This is no temporary blip. Con-sultants have warned for years that South Africa would experience widespread blackouts if the country didn’t expand its power-generating capacity. But the government failed to respond with new investment. It may now be too little too late.

“South Africa has aging infrastructure, including a variety of generators that have broken,” says Nick Barisheff, president of Toronto-based Bullion Management Services Inc. , which manages Millennium Bullion Fund, a mutual fund trust that invests exclusively in equal proportions of gold, silver and platinum. “This is not the kind of thing that can be replaced quickly.”

Indeed, the miners have been told they have to cut power consumption to 90% of normal use for the time being, while mine development projects have been shelved — for a few years, at least. If there is even a threat of another blackout, the deep underground mines will be closed to ensure that workers are not left without light and ventilation.

As a result, Johannesburg-based Anglo Platinum Ltd. , the top global platinum producer, has cut its 2008 output forecast by 150,000 oz. to 2.4 million oz., its second downward revision in the past few months.

Supply of the rarest of the precious metals is already limited. The U.S. Geological Survey estimates that the total resources in the ground that can be mined economically stand at 3.5 billion oz., mostly in the politically unstable countries of South Africa and Russia. Although there used to be significant above-ground supplies of platinum, these have dwindled to next to nothing in recent years.

Even before the power crisis in South Africa, the total global platinum supply was expected to drop by 2% to 6.6 million oz. in 2007, according to London-based Johnson Matthey PLC’s 2007 interim review released this past November. Safety concerns had forced rolling shutdowns of South African mines, while Moscow-based Norilsk Nickel Group — the main producer in Russia — was anticipating decreased production at its aging mines, adds the Johnson Matthey report.

At the same time, demand is expected to grow by 2.9% to a record 6.93 million oz. for the coming year. The main contributor to this growth is strong demand for catalytic converters as diesel vehicles gain a bigger share of the global automobile and truck fleet markets and emission controls tighten in China, Europe, Japan and elsewhere. Although palladium can be substituted for platinum in the catalytic converters used in gasoline-powered cars and trucks, diesel motors need platinum.

But vehicle manufacturers aren’t highly sensitive to price anyway. Less than half an ounce of platinum is used in each car; the catalytic converter is a minor contributor to the overall price-tag.

“Even if the price [of platinum] doubles, the car manufacturer can just pass that along,” Barisheff says.

The other main market for platinum is jewellery, which is price-sensitive and for which demand is softening. But continuing strong demand from the auto sector is expected to more than offset lower jewellery sales, barring lower auto sales in the U.S. brought on by a recession.

The price of platinum is also responding to increased investment demand, including the recent introduction of new platinum exchange-traded funds in London and Zurich. In May, Switzerland-based Novartis International AG announced that its pension fund would invest 4% of its 14 billion Swiss francs (US$11.4 billion) in platinum and other precious metals.

@page_break@As a result, most analysts are calling for higher platinum prices in 2008. Before the power disruptions in South Africa, London-based Natixis Commodity Markets Ltd. was forecasting that the average platinum price for 2008 would increase by 20% to $1,600 an oz. “Such a forecast implies that prices will spend part of the time over $1,800 an oz., which is now looking increasing likely,” a follow-up report states.

In early January, Raymond James Ltd. also revised its platinum price forecast upward, calling for prices of US$1,450 an oz. in 2008 vs an earlier forecast of US$1,300 an oz., and US$1,250 an oz. in 2009 vs US$1,150 an oz. previously. In light of the South African situation, this estimate now looks conservative.

So, what do these fundamentals mean for investors hoping to capitalize on continuing platinum supply disruptions? Assuming the catcon black market is off limits, they have two options: buy equities exposed to the metal or buy the metal itself.

At first glance, buying a platinum producer or near-producer would seem like a surefire winner, but it’s not that simple.

First of all, North America has no primary platinum producers, although a few companies, such as Toronto-based FNX Mining Co. Inc. , produce platinum as a byproduct of nickel mining and stand to benefit from the price increase. Toronto-based North American Palladium Ltd. also produces mi-nor amounts of platinum from its Lac des Îles palladium mine near Thunder Bay, Ont.

Canadian firms that have direct exposure to platinum have their holdings in South Africa, and the future for new and even established platinum projects there is becoming increasingly uncertain.

For instance, Vancouver-based Eastern Platinum Ltd. recently purchased a majority ownership in the Crocodile River mines and other projects in the Bushveld Complex, the centre of plati-num production in South Africa. The company expects to produce 185,000 oz. of platinum group metals (or pgms, which include platinum, palladium and rhodium) this year and has a lineup of future projects in the area.

Another one to watch is Anooraq Resources Corp. This Vancouver-based mining firm recently agreed to buy a 51% interest in the Lebowa mine in the Bushveld Complex from Anglo Platinum, giving Anooraq 103,300 oz. of pgm production a year, which will increase to 219,300 oz. with planned expansions of the mine.

Platinum Group Metals Ltd. , also based in Vancouver, has a minority interest in the Western Bushveld Joint Venture that expects to begin production of 250,000 oz. of pgms a year in 2010. PGM says its South African projects have a competitive advantage because they will be open-pit producers requiring much less power than the underground mines typical of the area. But whether the South African power utility will be willing or able to supply the project with power at all remains uncertain.

The solution to these uncertainties may be to avoid equities altogether and invest in the metal itself. Platinum can be purchased directly in the form of coins or bars, or indirectly through managed funds. Although a North American ETF devoted to platinum — similar to those that invest in silver and gold — does not seem to be in the cards, funds such as BMG’s Millennium Bullion Fund provide direct exposure to platinum without the risks associated with equities.

Millennium Bullion Fund has a fixed investment policy of purchasing equal amounts of gold, silver and platinum. It has a net asset value of about $150 million and holds 26,738 oz. of platinum. For the year ended Dec. 31, 2007, the Class A units of the fund generated a rate of return of 2.5% in Canadian dollars (21.5% in U.S. dollars). As of Feb. 11, it has produced a year-to-date rate of return of 19% in C$ and 17% in US$. IE