Platinum Price Near Bottom; Palladium On 'Edge Of A Cliff'

Johannesburg-SA (Sept 30)  Platinum prices may already be “near rock bottom” while palladium could be teetering “on the edge of a cliff,” said the consultancy CPM Group in a market commentary Friday.

 The report suggested that analysts do not look for palladium to extend its rare premium over platinum significantly and to perhaps even give it up.

Platinum historically has been the more expensive metal before palladium this week took the upper hand for the first time since 2001. Around 2:26 p.m. EDT Friday, spot palladium was trading at $937.65 an ounce, which was a $15.95 premium to the $921.70 price for platinum. By contrast, at the end of 2016, platinum was the more expensive metal by around $222 per ounce.

As palladium moved ahead of platinum this week, analysts cited a number of factors, including a large supply deficit for palladium. They cited worries about platinum demand for auto catalysts in diesel-powered cars, a sell-off in platinum on the back of gold’s decline in recent weeks, and softer jewelry consumption for platinum.

However, several bank analysts suggested palladium’s premium might not last for long, a view seemingly echoed by CPM Group.

“Quite often the prices of these metals run ahead of their fundamentals and that could be the case with palladium,” the consultancy explained. “If there is a decline in prices, the fall could be sharp because of the nearly unilateral fashion in which this market has performed in recent years. There have been a lot of new investors that have entered this market, attracted by the healthy and sustained rise in prices…. Many of these investors are likely to leave the palladium market just as quickly as they got into the market.”

The consultancy pointed out that the two sister metals – whose main industrial use is for catalytic converters in motor vehicles – have been on diverging paths since 2015, with palladium steadily rising. Palladium is used for gasoline-powered vehicles such as those popular in the world’s two largest car markets of the U.S. and China. Diesel-powered cars, which are popular in Europe, require platinum for catalysts.

“The weakness in platinum prices has been driven primarily by softening fabrication demand fundamentals and a lack of commensurate reductions in supply to offset those weaker demand fundamentals,” CPM Group said.

There has been growing negative sentiment in Europe toward diesel vehicles following emissions-testing scandals, the consultancy said. Still, CPM Group pointed out, platinum use in auto catalysts has grown at modest rates of 0.9% to 2% per annum between 2015 and 2017. Meanwhile, slower economic growth in key platinum-jewelry consumer China means this source of demand “has not picked up the slack” from the auto market, CPM Group said. Further, mine supply has not declined sufficiently to offset the lack of growth in demand.

However, CPM Group said all of the negatives for platinum are for the most part factored into prices already.

“While there is potential for platinum prices to decline further, the downside for this metal seems limited at this time,” the report said.

Meanwhile, the research firm continued, much bullishness has already been built into palladium prices, with the price rise perhaps outpacing the supply/demand fundamentals. Further, the Chinese and U.S. car markets – which favor palladium – have shown signs of softer demand lately. Also, unlike platinum, the amount of palladium supply from recycling is on the rise, CPM Group said.

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