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Metals Focus Sees Balanced 2018 Platinum Market But Palladium Deficit

Kitco News

(Kitco News) - The divergence between the platinum group metals will continue in 2018, with palladium forecasted to post a supply deficit of 1.24 million ounces, while platinum is seen as a largely balanced market, with a surplus of just 40,000 ounces, Metals Focus said Monday.

The consultancy released its “Platinum and Palladium Focus 2018” report at the start of Platinum Week in London.

The metals diverged last year, with palladium outperforming and gaining a price premium to sister metal platinum in September for the first time since 2001. Metals Focus pointed out that this premium, although modest, has been in place nearly constantly since.

The main use for both metals is catalytic converters in automobiles. Gasoline-powered cars, such as those used in the world’s two largest markets – the U.S. and China – have historically used palladium, which normally has been less expensive. Meanwhile, diesel-powered vehicles, which for years were most popular in the European market, required platinum.

Metals Focus analysts say they see the diverging conditions continuing for these two metals in 2018.

“Platinum must contend with the ongoing decline in diesel’s market share within Europe, which is proving more rapid than had been expected,” the consultancy said. “Consensus expectations see this slide continuing, with any material offset from tightening heavy-duty emissions legislation in China unlikely to come before 2020. The above market share losses will be exacerbated by a shift to selective catalytic reduction (SCR) solutions.”

As a result, Metals Focus forecast a 3% loss for automotive platinum demand in 2018 to 3.3 million ounces. Further, the Chinese platinum-jewelry market – the largest in the world for the metal – still has not shown signs of bottoming, Metals Focus said. This is offsetting further gains in the U.S. and Indian markets, thus the consultancy forecast jewelry demand for the metal effectively unchanged in 2018 at 2.3 million ounces.

Mine supply is seen falling 0.9% to 6.1 million ounces, although this will not be enough to bring about a material change in the global supply/demand balance, Metals Focus said.

“Overall, the platinum market will be effectively balanced in 2018 (with a forecast surplus of just 40koz), for the fourth year in a row,” the consultancy said.

The consultancy said a “material and ongoing stock depletion” is necessary for the platinum price to move significantly higher. Still, analysts look for platinum to rise 3% year-on-year to a 2018 average of $980 an ounce, mainly helped by the metal’s correlation with gold.

The case for higher palladium prices is more clear-cut, with automotive demand for this metal forecast a new record high in 2018, rising by 2% to 8.5 million ounces, Metals Focus said. The consultancy looks for speculators to favor palladium, forecasting prices will rise by 19% year-on-year to an average of $1,030 in 2018.

“Key to this outcome will be the impact of tighter emissions standards on PGM loadings in most jurisdictions,” Metals Focus said. “This will be augmented by rising vehicle production….In addition, European palladium automotive demand will benefit from further market-share gains by gasoline in the light-vehicle sector, at the expense of diesel.”

Analysts added that despite market conjecture that manufacturers of gasoline-powered cars will start substitution from palladium to platinum, no such major announcements have been made yet.

Meanwhile, Metals Focus looks for a 2% decline in mine production to 6.7 million ounces this year.

“Overall, the consultancy therefore expects palladium to post a significant deficit in 2018 of 1.24Moz,” Metals Focus said. “This will herald a further marked fall in above-ground stocks of palladium, with these having already recorded sharp declines so far this decade.”

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