Metals Focus: Palladium To Outperform Platinum Again In 2019
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(Kitco News) - The palladium market will remain in a supply deficit during 2019 while platinum stays in a surplus, and as a result, palladium should remain the stronger performer between the two sister metals, says Metals Focus.
Analysts reported that platinum recorded a supply surplus of 349,000 ounces, or 10.8 tonnes, last year. Meanwhile, palladium posted another hefty deficit, this time 821,000 ounces, or 25.5 tonnes.
“These impacted investor sentiment, helping drive palladium’s outperformance of the platinum price,” Metals Focus said.
For 2019, Metals Focus sees another platinum surplus of 630,000 ounces or 19.6 tonnes. However, the consultancy envisions a palladium supply deficit of 574,000 ounces or 17.9 tonnes. As a result, platinum above-ground stocks are forecast to continue rising to 9.7 million ounces (302 tonnes) at year-end, compared to 6.9 million ounces (215 tonnes) at the start of this decade, Metals Focus said. Palladium stocks, by contrast, have fallen and the consultancy’s year-end forecast is 12.9 million ounces (400 tonnes), down from 17.7 million (550 tonnes) at the end of 2010.
“While more recent price developments may suggest a reversal [of the premium], we believe these moves are driven by speculative forces and so are likely to be short-lived,” Metals Focus said.
Since topping $1,600 an ounce for the first time ever back in March, spot palladium has subsequently pulled back, trading around $1,311 as of 8:50 a.m. EDT Monday morning. Still, the metal has a $453 premium to platinum, which was trading at $858.
“In spite of short-term headwinds (such as lackluster car sales in China and the U.S., and concerns over the potential for substitution losses in light vehicles), we expect palladium to realize a physical deficit for the foreseeable future,” Metals Focus said. “As such, for 2019, Metals Focus believes that professional investors will eventually return to palladium, with prices forecast to surge by 45% y/y [year-over-year] to an annual average of $1,490 in 2019.”
The consultancy predicted that palladium auto-catalyst demand will rise by 3.6% in 2019 to a record high of 8.59 million ounces (267 tonnes), driven by tighter emissions standards that require more loadings of platinum group metals for most regions, as well as an increased market share for gasoline vehicles in Europe. Palladium historically has been used for gasoline-powered scars. Consumer preference for larger vehicles, especially in the U.S., also means more palladium loadings. Meanwhile, there has been an absence of substitution from palladium to platinum in gasoline-powered cars despite the price difference.
Palladium supply is forecast to increase by 4% this year to 10.11 million ounces (314 tonnes). Mine supply is expected to rise by 5% to 7.17 million ounces (223 tonnes), while recycling is expected to grow by 3% rise to 2.94 million ounces (91 tonnes).
Meanwhile, analysts look for platinum auto-catalyst demand to fall for the third straight year due to weakness in Europe’s diesel market. Vehicles powered by diesel require platinum for catalysts. The decline in platinum use this year likely will be less dramatic than in 2018 due to emissions regulations and gains in demand for heavy-duty diesel, Metals Focus said. Meanwhile, the consultancy looks for platinum demand by the jewelry sector to decline by 3% from last year, with physical investment forecast to fall by 15%. Against this backdrop, the consultancy looks for total platinum demand to drop for a fourth straight year, by 1.2% to 7.70 million ounces (239 tonnes). Meanwhile, mine output is forecast to rise by 3% in 2019.
“Concerning our platinum price forecast, investor sentiment towards the metal appears less bearish compared to 2018,” Metals Focus said. “This, coupled with our constructive view towards gold, is expected to deliver a further recovery in platinum price later this year. However, unsupportive fundamentals will still weigh on platinum, which explains our forecast of a 1% dip for platinum’s annual average this year to $875.”