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PGM prices struggle to find bullish momentum, but future looks bright for platinum - Bank of America

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(Kitco News) - Platinum Group Metals are not attracting much investor interest even as Russia's war with Ukraine impacts the palladium supply.

Sunday, the British government said it would increase tariffs on platinum and palladium imports from Russia and Belarus in a new package of sanctions aimed to weaken Russia's economy further.

Many analysts have expected sanctions on Russian palladium to impact prices significantly. Russia represents about 40% of the global palladium supply.

Despite the new sanctions, palladium prices continue to test support just above $2,000 an ounce.

Platinum has been less responsive to the new Russian sanctions. Russian platinum represents only about 11% of the total global supply. Platinum prices continue to be capped below resistance at $1,000.

Commodity analysts at Bank of America have lowered their price forecasts for both platinum and palladium despite rising risks to palladium supplies.

The bank sees palladium prices averaging around $2,300 this year, down 27% from its previous forecast. At the same time, Bank of America sees platinum prices averaging the year around $1,195 an ounce, down more than 10% from the previous estimate.

"Notwithstanding macro headwinds, inventories remain low, supporting the metals. Linked to low inventories, prices have also become more volatile," said Michael Widmer, precious metals analyst at the BofA, in his latest report.

While the lack of supply from Russia could help support palladium, Widmer also said that long-term fundamentals are more bullish for platinum.

He said that the growing hydrogen economy will provide long-term support for platinum.

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"While concerns over supply from Russia may be a focus at the moment, demand declines will ultimately reduce the importance of palladium for the global economy. Platinum, predominantly produced by South Africa, and critical for the hydrogen economy will however become more important going forward," he said.

Widmer explained that Russia's invasion of Ukraine had accelerated global plans to develop green energy to decarbonize and establish safe and reliable power. Using green energy to septate water into hydrogen and oxygen could be a reliable source of energy, Widmer explained.

"While hydrogen is predominantly generated from fossil fuels, green electrolysis capacity is expected to accelerate in the coming years," he said. "Based on the current project pipeline, total installed electrolysis capacity could exceed 1GW already this year and 58GW out to 2030."

Widmer said that the growing hydrogen economy could add nearly 300,000 ounces annually to platinum demand within the next ten years.

"This puts platinum on a different trajectory to palladium. While concerns over supply from Russia may be a focus at the moment, demand declines will ultimately reduce the importance of palladium for the global economy," he said.

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 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.