Analysts See Potential For Further Gains In Palladium, Platinum Prices
(Kitco News)- While theshine has come off Platinum Group Metals in the past month, some analystscontinue to see potential for the precious metals throughout the year.
After astellar 2017, palladium has led the selloff in the PGM market, dropping morethan 13% from its all-time highs seen a month ago. March palladium futures lasttraded at $982.30 an ounce. At the same time, the spread has closed betweenplatinum and palladium, with platinum falling nearly 6% in the last month. April platinum futures last traded at $977.20 an ounce.
Commodityanalysts at BMO Capital Markets said that outflows in PGM-backedexchange-traded funds could provide short-term headwinds for the market; but,they added that fundamentals of stable demand and shrinking supply couldprovide some support for prices through the rest of the year.
“Interest inplatinum and palladium has grown significantly over the years as investors settheir sights beyond gold and silver. A low correlation with other asset classesand a supply constrained outlook have seen exchange-traded funds proliferateand a maturing futures market has broadened the appeal of the sector,” theynoted. “However, changing market dynamics in the PGM market have promptedinvestors to rotate out of longer-term, buy-and-hold ETF investments as theyinstead increasingly favor shorter-term speculative play.”
Lookingforward, the Canadian bank sees more potential for platinum over palladium.
“The moodseems to be changing, and in recent weeks spot prices have closed the gap onpalladium with the spread narrowing to within $10/oz. Fundamentally, withglobal auto sales growth slowing, and potential for platinum replacement incatalysts, we expect the average platinum price to be $50/oz higher thanpalladium this year,” he said in the report.
MarcusGarvey, an analyst at the world’s largest bank, ICBC Standard Chart, also seesthe potential for PGM prices through 2018. In a report Monday, he said that heexpects platinum prices to average above $1,000 an ounce as the market benefitsfrom a weaker U.S. dollar. However, he added that he still sees more potentialfor palladium, expecting the metal to outperform, seeing prices averaging$1,080 an ounce this year.
“Not only dopalladium’s fundamentals remain supportive but platinum’s supply-demand balanceis also improving. Absent a full-blown macro-market panic, therefore, expectboth markets to find support in fairly short order,’ he said.
Garvey notedthat both platinum and palladium face some supply issues as the market adjuststo declining auto sales. Palladium is the critical metal used in catalyticconverters in gasoline engines and platinum is used in diesel engines. Garveyadded that for platinum, strong jewelry demand help to compensate for weakindustrial demand.
While bothICBC and BMO see further potential for PGMs in 2018, both firms highlightedgrowing uncertainty as electric vehicles gain more market share in the autosector, reducing demand for gasoline and diesel-powered engines.
“Although EVsales are growing rapidly, they are coming from a low base and, globally, willonly take a small fraction of the combined gasoline and diesel share betweennow and 2020,” said Garvey. “We, therefore, continue to monitor EV developmentsclosely but do not yet find them to have a significant impact on our PGM marketbalances.”
Analysts atBMO were slightly more pessimistic noting “Given the rise of EVs and subsequentstrategy shift from car makers, there is a school of thought that the demandoutlook for auto catalysts is one in terminal decline.”
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.