Metals Focus Sees Balanced 2018 Platinum Market But Palladium Deficit
(Kitco News)- Thedivergence between the platinum group metals will continue in 2018, withpalladium forecasted to post a supply deficit of 1.24 million ounces, whileplatinum is seen as a largely balanced market, with a surplus of just 40,000ounces, Metals Focus said Monday.
Theconsultancy released its “Platinum and Palladium Focus 2018” report at thestart of Platinum Week in London.
Themetals diverged last year, with palladium outperforming and gaining a price premiumto sister metal platinum in September for the first time since 2001. MetalsFocus pointed out that this premium, although modest, has been in place nearlyconstantly since.
Themain use for both metals is catalytic converters in automobiles.Gasoline-powered cars, such as those used in the world’s two largest markets -the U.S. and China - have historically used palladium, which normally has been lessexpensive. Meanwhile, diesel-powered vehicles, which for years were mostpopular in the European market, required platinum.
MetalsFocus analysts say they see the diverging conditions continuing for these twometals in 2018.
“Platinummust contend with the ongoing decline in diesel’s market share within Europe,which is proving more rapid than had been expected,” the consultancy said. “Consensusexpectations see this slide continuing, with any material offset fromtightening heavy-duty emissions legislation in China unlikely to come before2020. The above market share losses will be exacerbated by a shift to selectivecatalytic reduction (SCR) solutions.”
Asa result, Metals Focus forecast a 3% loss for automotive platinum demand in2018 to 3.3 million ounces. Further, the Chinese platinum-jewelry market - thelargest in the world for the metal - still has not shown signs of bottoming,Metals Focus said. This is offsetting further gains in the U.S. and Indianmarkets, thus the consultancy forecast jewelry demand for the metal effectivelyunchanged in 2018 at 2.3 million ounces.
Minesupply is seen falling 0.9% to 6.1 million ounces, although this will not beenough to bring about a material change in the global supply/demand balance,Metals Focus said.
“Overall,the platinum market will be effectively balanced in 2018 (with a forecastsurplus of just 40koz), for the fourth year in a row,” the consultancy said.
Theconsultancy said a “material and ongoing stock depletion” is necessary for theplatinum price to move significantly higher. Still, analysts look for platinumto rise 3% year-on-year to a 2018 average of $980 an ounce, mainly helped bythe metal’s correlation with gold.
Thecase for higher palladium prices is more clear-cut, with automotive demand forthis metal forecast a new record high in 2018, rising by 2% to 8.5 millionounces, Metals Focus said. The consultancy looks for speculators to favorpalladium, forecasting prices will rise by 19% year-on-year to an average of$1,030 in 2018.
“Keyto this outcome will be the impact of tighter emissions standards on PGMloadings in most jurisdictions,” Metals Focus said. “This will be augmented byrising vehicle production....In addition, European palladium automotive demandwill benefit from further market-share gains by gasoline in the light-vehiclesector, at the expense of diesel.”
Analystsadded that despite market conjecture that manufacturers of gasoline-poweredcars will start substitution from palladium to platinum, no such majorannouncements have been made yet.
Meanwhile,Metals Focus looks for a 2% decline in mine production to 6.7 million ouncesthis year.
“Overall,the consultancy therefore expects palladium to post a significant deficit in2018 of 1.24Moz,” Metals Focus said. “This will herald a further marked fall inabove-ground stocks of palladium, with these having already recorded sharpdeclines so far this decade.”
By Allen SykoraFor Kitco News
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