Commerzbank: Platinum, Palladium To Rise Into Year-End
(Kitco News) - Platinumgroup metals should rise in the last five months of 2018, with platinumreturning to around $900 an ounce by year-end and palladium $950, Commerzbanksaid in report released on Wednesday
Aroundmid-morning on Tuesday, platinum was at $818 an ounce and palladium was at$915.
Thesupply/demand fundamentals of platinum and palladium differ strongly, which hasbeen reflected in the price movements, the bank pointed out. Historically,platinum was the more expensive metal, but this changed last autumn. The mainindustrial demand for both is auto catalysts, and this has fallen for platinum(used in diesel-powered vehicles) but risen for palladium (used ingasoline-powered cars). There is a supply surplus in the platinum market,whereas the palladium market remains in deficit, Commerzbank said.
“Asthe platinum price has already fallen too sharply, we see potential for arecovery,” analysts said. “Palladium should also see gains following thecorrection of the past months, but its price is unlikely to revisit the recordhigh from the beginning of this year.”
Commerzbankcited some of the 2018 platinum-supply surpluses listed by variousorganizations, including 180,000 ounces by the World Platinum InvestmentCouncil, up to 316,000 ounces by Johnson Matthey and 86,000 ounces by MetalsFocus. Demand has been hurt by reduced interest in diesel-powered vehicles,with jewelry demand also on the decline, Commerzbank said.
However,the bank said, there is potential for the platinum market to return to a supplydeficit in 2019. Further, the expected surplus for this year should already befactored into prices.
“Thedecline in platinum demand from the European auto industry should lose momentum,”Commerzbank said. “Outside Europe, platinum needs ought to grow in theautomotive industry, especially for commercial vehicles in Asia and NorthAmerica. Jewelry demand should return to growth after years of declines. Thearea of fuel cells promises growth potential for the coming years. On thesupply side, the low prices ought to have a moderating effect.”
Thus,the bank said, “If investment demand remains stable, the platinum market couldthus be in supply deficit again next year. The platinum price looks set to riseto $900 per troy ounce by year-end and trade at four-digit levels again nextyear. The expected price recovery will be additionally supported by the rise ofthe gold price, which we expect.”
Meanwhile,palladium prices have been pulled down lately by worries that a global tradewar will hurt automotive demand, as well as spillover selling from weaker goldprices, the bank said. Otherwise, analysts said supply deficits forecasted byvarious organizations include 239,000 ounces by Johnson Matthey, 1.2 million byMetals Focus and 1.1 million by Thomson Reuters GFMS.
“Thekey driver of the renewed supply deficit is ongoing robust demand from theautomotive industry, which accounts for more than 80% of total palladium demandand is expected to reach a new record level of nearly 8.6 million ounces thisyear,” Commerzbank said. “While the mostly gasoline-focused auto markets in theU.S. and China should no longer grow noticeably after their strong gains in theprevious years, sales of cars with gasoline engines are rising in Europebecause of the diesel crisis.”
Further,tighter emissions regulations could result in even heavier loadings ofpalladium in auto catalysts, analysts said.
“Weforecast a slightly higher palladium price of $950 per troy ounce by year-endand another rise to $1,000 per troy ounce next year,” Commerzbank said.
However,analysts caution that any trade conflict poses a downside risk for prices sincethis can mean slower economic growth. “In this case palladium would be vulnerable,because it is strongly pro-cyclical and exhibits a positive correlation withequity markets,” Commerzbank said.
By Allen SykoraFor Kitco News
Follow @AllenSykora
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