‘Plunging’ PGM Group Metals
London (Sept 21) This was a tongue-in-cheek description of platinum group metals in a recent overview of PGM supply, demand and pricing by Macquarie analysts. Clearly it’s apt. The PGMs have performed miserably in the past year. Platinum, worst in class, is off 30% relative to early 2014 and trading well under the price of gold now. That’s the past.
But Macquarie, with some conviction, views the point of maximum pain as behind us. It draws a scenario for a short term rally in PGMs, palladium especially, followed by slower price-building beyond. And in saying so, Macquarie was a little humble, admitting that prices could build off a “lower base” than it had once expected. Indeed, palladium at $600/oz is a far cry from the numerous analyst predictions in the past year that put it a couple hundred dollars over that mark.
The obvious bull case is in cars, and this is where Macquarie goes. “An improving car market is likely to be the driver of firmer prices in the short-run,” Macquarie says.
It remains a compelling case, though globally the question of growth remains on red alert. For one, sales in the US continue to recover remarkably. They’re back at 16 million units versus under 10 million at the depths of the 2008-crisis (annualised rates). This bolsters the palladium market, more than anything else (used in gas cars, which Americans prefer.)
As in the US, over in Europe car sales are also recovering quite strongly from notable weakness in the past couple years. Back in 2013, annualised car sales dropped under 12 million. Now they’re back over 13 million. This is a fair bit short of 15 million where things stood pre-2008, but shows improvement. And that said, diesel cars have lost some market share, hurting platinum prospects somewhat, Macquarie notes.
On the other hand, China has been weak recently. Macquarie acknowledges this, but doesn’t flinch. In the grand scheme of things sales have been rising and Macquarie sees the trend continuing. It argues consumers there continue to get richer on a per capita basis and will buy more things like cars.
Bigger ones too. SUV penetration is sky-rocketing in China and remains just shy of 30% now. Furthermore, the Chinese will also have more options to finance cars in the coming years. Clearly, the financial market in China, for its fits and starts, is maturing in such areas. That too could boost demand.
One key takeway is this: Chinese car sales tend to pickup in the second half of the year, hitting a lowpoint in July (as they have this year). If they pickup steam as in the past – and pick up above 2014 levels in particular – PGMs could very well follow.