Analysts See Potential For Further Gains In Palladium, Platinum Prices
After a stellar 2017, palladium has led the selloff in the PGM market, dropping more than 13% from its all-time highs seen a month ago. March palladium futures last traded at $982.30 an ounce. At the same time, the spread has closed between platinum and palladium, with platinum falling nearly 6% in the last month. April platinum futures last traded at $977.20 an ounce.
Commodity analysts at BMO Capital Markets said that outflows in PGM-backed exchange-traded funds could provide short-term headwinds for the market; but, they added that fundamentals of stable demand and shrinking supply could provide some support for prices through the rest of the year.
“Interest in platinum and palladium has grown significantly over the years as investors set their sights beyond gold and silver. A low correlation with other asset classes and a supply constrained outlook have seen exchange-traded funds proliferate and a maturing futures market has broadened the appeal of the sector,” they noted. “However, changing market dynamics in the PGM market have prompted investors to rotate out of longer-term, buy-and-hold ETF investments as they instead increasingly favor shorter-term speculative play.”
Looking forward, the Canadian bank sees more potential for platinum over palladium.
“The mood seems to be changing, and in recent weeks spot prices have closed the gap on palladium with the spread narrowing to within $10/oz. Fundamentally, with global auto sales growth slowing, and potential for platinum replacement in catalysts, we expect the average platinum price to be $50/oz higher than palladium this year,” he said in the report.
Marcus Garvey, an analyst at the world’s largest bank, ICBC Standard Chart, also sees the potential for PGM prices through 2018. In a report Monday, he said that he expects platinum prices to average above $1,000 an ounce as the market benefits from a weaker U.S. dollar. However, he added that he still sees more potential for palladium, expecting the metal to outperform, seeing prices averaging $1,080 an ounce this year.
“Not only do palladium’s fundamentals remain supportive but platinum’s supply-demand balance is also improving. Absent a full-blown macro-market panic, therefore, expect both markets to find support in fairly short order,’ he said.
Garvey noted that both platinum and palladium face some supply issues as the market adjusts to declining auto sales. Palladium is the critical metal used in catalytic converters in gasoline engines and platinum is used in diesel engines. Garvey added that for platinum, strong jewelry demand help to compensate for weak industrial demand.
While both ICBC and BMO see further potential for PGMs in 2018, both firms highlighted growing uncertainty as electric vehicles gain more market share in the auto sector, reducing demand for gasoline and diesel-powered engines.
“Although EV sales are growing rapidly, they are coming from a low base and, globally, will only take a small fraction of the combined gasoline and diesel share between now and 2020,” said Garvey. “We, therefore, continue to monitor EV developments closely but do not yet find them to have a significant impact on our PGM market balances.”
Analysts at BMO were slightly more pessimistic noting “Given the rise of EVs and subsequent strategy shift from car makers, there is a school of thought that the demand outlook for auto catalysts is one in terminal decline.”