London 20/05/2016 - Platinum Week in London was more upbeat than last year’s event, although it is yet to be seen if the rally in PGMs can be sustained.
This year has seen platinum and palladium post strong rallies due to an increasingly favourable economic climate, market participants said.
Platinum recently traded at $1,019/1,024, up $8 on the previous close, while palladium was last at $556/551, up $3.
“We believe these gains mark the end of the bearish trend of the past 18 months when their prices nearly halved,” Philip Newman, director of Metals Focus, said.
“The lows for this cycle are behind us for all precious metals,” Tom Kendall, ICBC Standard Bank analyst, said. “The bears have returned to hibernation.”
Still, that does not mean that precious metals have reverted to bull market territory, market participants noted.
“The fundamentals for platinum and palladium are slowly improving as near-market inventories of metal are steadily drawn down. But the recovery will be more marathon than sprint, and scrap flows will present an increasing headwind for palladium over the medium term,” Kendall noted.
Kendall believes a correction in platinum back below $1,000 is likely in the third quarter of the year.
“While we are certainly constructive towards both platinum and palladium, we cannot go as far as to say we are bullish,” Newman said.
But slow US interest rate increases, the proliferation of negative policy rates and concerns about the outlook for global markets are likely to remain in place for the foreseeable future underpinning investor interest in gold, which should benefit other precious metals, market participants said.
Both platinum and palladium’s supply and demand fundamentals remain favourable, with both markets expected to record sizeable physical deficits in 2016.
According to the World Platinum Investment Council (WPIC), the platinum market will be undersupplied by 135,000 ounces in 2016 - the fifth consecutive year of deficit albeit the smallest of the last three years.
And Johnson Matthey predicts the platinum market to record a deficit of 861,000 ounces this year.
On the demand side, gains in vehicle production should support. Light vehicle sales in the US sales rose 3.4 percent year-on-year in the first four months while Chinese sales were up 6.8 percent, according to the CAAM.
Sales in Europe rose a strong 8.5 percent in January-April although there has been further slippage in diesel vehicle sales following emissions scandals, which continue to weigh on the sentiment, market participants noted.
Car giant Volkswagen admitted rigging diesel engines to evade emissions tests and Mitsubishi Motors manipulated test data to overstate the fuel efficiency of 625,000 cars.
Other manufacturers have also reviewed their internal emissions certification processes while Mercedes Benz parent company Daimler has started an investigation into its emissions testing at the request of the US Department of Justice.
Despite the more upbeat fundamentals, market participants see limited upside for both platinum and palladium prices this year. The fact that both of the metals prices have been largely boosted by speculative short-covering and gold rather than a real pick-up in demand remains a concern.
“This explains the only modest inflows into ETFs and futures for PGMs so far this year,” Newman noted.“This should not be surprising. A number of the factors that have encouraged gold investment, for instance those relating to concerns about market turbulence, are if anything, not positive for PGMs."
As well, ample above-ground stocks of platinum and palladium remain a worry.
“While supply-demand conditions may offer price support, they will not be sufficient to fuel a strong rally,” Newman concluded.
(Editing by Tom Jennemann)