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Commerzbank: Platinum, Palladium To Rise Into Year-End

Kitco News

(Kitco News) - Platinum group metals should rise in the last five months of 2018, with platinum returning to around $900 an ounce by year-end and palladium $950, Commerzbank said in report released on Wednesday

Around mid-morning on Tuesday, platinum was at $818 an ounce and palladium was at $915.

The supply/demand fundamentals of platinum and palladium differ strongly, which has been reflected in the price movements, the bank pointed out. Historically, platinum was the more expensive metal, but this changed last autumn. The main industrial demand for both is auto catalysts, and this has fallen for platinum (used in diesel-powered vehicles) but risen for palladium (used in gasoline-powered cars). There is a supply surplus in the platinum market, whereas the palladium market remains in deficit, Commerzbank said.

“As the platinum price has already fallen too sharply, we see potential for a recovery,” analysts said. “Palladium should also see gains following the correction of the past months, but its price is unlikely to revisit the record high from the beginning of this year.”

Commerzbank cited some of the 2018 platinum-supply surpluses listed by various organizations, including 180,000 ounces by the World Platinum Investment Council, up to 316,000 ounces by Johnson Matthey and 86,000 ounces by Metals Focus. Demand has been hurt by reduced interest in diesel-powered vehicles, with jewelry demand also on the decline, Commerzbank said.

However, the bank said, there is potential for the platinum market to return to a supply deficit in 2019. Further, the expected surplus for this year should already be factored into prices.

“The decline in platinum demand from the European auto industry should lose momentum,” Commerzbank said. “Outside Europe, platinum needs ought to grow in the automotive industry, especially for commercial vehicles in Asia and North America. Jewelry demand should return to growth after years of declines. The area of fuel cells promises growth potential for the coming years. On the supply side, the low prices ought to have a moderating effect.”

Thus, the bank said, “If investment demand remains stable, the platinum market could thus be in supply deficit again next year. The platinum price looks set to rise to $900 per troy ounce by year-end and trade at four-digit levels again next year. The expected price recovery will be additionally supported by the rise of the gold price, which we expect.”

Meanwhile, palladium prices have been pulled down lately by worries that a global trade war will hurt automotive demand, as well as spillover selling from weaker gold prices, the bank said. Otherwise, analysts said supply deficits forecasted by various organizations include 239,000 ounces by Johnson Matthey, 1.2 million by Metals Focus and 1.1 million by Thomson Reuters GFMS.

“The key driver of the renewed supply deficit is ongoing robust demand from the automotive industry, which accounts for more than 80% of total palladium demand and is expected to reach a new record level of nearly 8.6 million ounces this year,” Commerzbank said. “While the mostly gasoline-focused auto markets in the U.S. and China should no longer grow noticeably after their strong gains in the previous years, sales of cars with gasoline engines are rising in Europe because of the diesel crisis.”

Further, tighter emissions regulations could result in even heavier loadings of palladium in auto catalysts, analysts said.

“We forecast a slightly higher palladium price of $950 per troy ounce by year-end and another rise to $1,000 per troy ounce next year,” Commerzbank said.

However, analysts caution that any trade conflict poses a downside risk for prices since this can mean slower economic growth. “In this case palladium would be vulnerable, because it is strongly pro-cyclical and exhibits a positive correlation with equity markets,” Commerzbank said.

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