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This Precious Metal Has More Potential - Metals Focus

Kitco News

(Kitco News) - Metals Focus looks for the supply/demand fundamentals to favor palladium over sister metal platinum in the medium term.

Both metals are used in auto catalysts, with palladium used in gasoline-powered engines and platinum in those fueled by diesel.

Palladium prices topped platinum in late September for the first time since 2001, and its premium at times has since widened to more than over $60, the consultancy said. Around 9:45 a.m. EDT, spot palladium was trading up $7.30 at $971.80 an ounce, while platinum was down $2.90 to $919.10.

The palladium market recorded cumulative deficits of almost 2.5 million ounces from 2010 to 2016, with the shortfall in 2017 forecast to exceed 1.5 million, Metals Focus said.

“Over the same period, however, there was a near-identical surplus in the platinum market,” the consultancy continued. “In addition, palladium so far this year has benefited from a rise in investor appetite in pro-cyclical assets following [U.S. President Donald] Trump’s victory. By contrast, patchy gold investment, and by implication frequently range-bound prices, has hurt platinum’s appeal, given its closer link to the yellow metal.

“Looking ahead, we believe that the disparity between the two metals’ fundamentals will continue and in fact widen over the foreseeable future.”

Meaningful cuts in South African platinum output appear unlikely, with global mine supply forecast to drop by 1% this year and 2% in 2018, Metals Focus said. Meanwhile, worries about the outlook for platinum demand in diesel-powered vehicles has cooled investor interest in this metal, the consultancy noted, adding that Chinese platinum-jewelry demand has been soft.

“Turning to palladium, its favorable fundamentals are likely to persist, which in turn will result in chronic deficits in the physical market,” Metals Focus said. “Continued gains in automotive demand, largely fueled by secular growth in gasoline car sales, will underpin this position.”

The consultancy later added: “Given such stronger fundamentals, palladium’s outperformance over the past few years seems justified, as would further relative gains in the medium term.”

However, analysts also said that “we would caution that palladium will be vulnerable to a change in investor sentiment towards risky assets, which could see a temporary reversal of [the] platinum/palladium ratio.”

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