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Palladium Has More Potential Than Platinum As Global Economy Improves – Citi

By Kitco News
Monday January 13, 2014 3:34 PM

(Kitco News) - An improving global economy and increased demand will help platinum group metals; however, analysts at Citigroup see more potential for palladium than platinum.

In a research report published Sunday, the analysts increased their price forecast for both platinum and palladium by 2.5% for 2014. The bank is expecting platinum to hover around $1,538 an ounce this year, up from its previous forecast of $1,500 an ounce.

For palladium, they are expecting prices to hover around $820 per ounce, up from the previous forecast of $800. The analysts also remain neutral on rhodium as they expect prices will remain around $1,150 in 2014.

Citigroup says it is more optimistic about palladium because of the differing supply outlooks.

The bank is expecting the platinum market to show a deficit of 224,000 ounces of the precious metal for 2014. Although this deficit would be price supportive for Platinum, the analysts point out that above-ground stockpiles current sit at about 1.7 years of supply.

 “Destocking of these inventories will likely result in platinum prices remaining below market expectations in the medium term in our view, despite deficit forecasts,” the analysts said in their report.

The analysts added that continued inflows into platinum-backed exchange traded funds and improved auto demand in Europe will be the two biggest drivers for the metal.

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To a lesser extent the analysts see some demand for platinum also coming from Chinese jewelry demand; however they see this demand as “elastic” as it is price dependant. “We expect the platinum market to return to balance from FY15 onwards.”

However looking at palladium, Citigroup is forecasting a supply deficit of 1.139 million ounces in 2014. In contrast, the analysts also point out that above ground supply for palladium has dropped 36% in the last five years.

“Contrary to the platinum market, the palladium market does not have a price-elastic ‘counter weight’ such as Chinese jewelry demand. Rather, 85-90% of palladium demand is industrially linked and price-inelastic. All these points make us bullish on the outlook for the price of palladium,” they said.

The analysts point out that auto demand in the U.S. and China, which are expected to pick up in 2014 as both economies continue to build momentum, make up about 40% of global vehicle production.

“The sheer size of these two markets combined implies significant potential uplift in demand for palladium, even in a muted growth environment,” they said.

By Neils Christensen of Kitco News; nchristensen@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 precious metal products, 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.
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