In May each year, representatives of the platinum and palladium industry gather in London for what has become known as Platinum Week. With this year’s event kicking off on Monday May 15 in London, Metal Bulletin looks at a few of key topics that are influencing the PGM markets.
The divergence between platinum and palladium
Palladium prices have performed far stronger than those of platinum this year, with spot prices at the time of writing at $804/809 per oz, up 17% in the year to date. The metal continues to outperform the rest of the precious metals, setting a fresh 2017 high on May 1 at $830 per oz.
Platinum, meanwhile, last quoted at $913/918 per oz, has been the worst performing precious metal in the year to date, continuing the underwhelming performance of 2016.
“Platinum is acting like a kid out of college drunk and hungover – palladium is the prom queen having all the fun,” Metal Bulletin analyst Andy Farida said.
Tighter supply fundamentals are one of palladium’s strengths, analysts at Scotiabank noted. The market is expected to be in a 600,000 oz deficit this year, compared with a 120,000 oz deficit in platinum. Platinum’s weaknesses include poor demand for jewellery and its loss of market share in autocatalysts, they said.
Palladium’s use is heavily concentrated in the autocatalyst industry, where 70% of palladium is used. This compares with some 34% of platinum used in the auto industry.
Strong vehicle sales in recent years, especially in China and the USA last year, have fuelled demand for palladium.
Meanwhile platinum demand has suffered in recent years because demand for jewellery – which accounts for 36% of platinum usage – has been weak, especially in India and China.
Platinum jewellery demand declined by 12% in 2016 to reach 2.18 million oz (67.7 tonnes). China accounted for the bulk of this loss, according to the latest report by the GFMS team at Thomson Reuters on the PGM markets.
“Platinum’s underperformance compared with gold, to the extent that platinum prices are some $300 per oz below those of gold, has been a negative for platinum jewellery because it has been seen to be a metal that does not keep its value,” Metal Bulletin analyst William Adams noted.
“I think platinum is really confused at the moment,” Farida added. “It is loved and bought during high haven demand – following gold and silver – but at the same time unable to stand on its own two feet as an industrial metal and is losing its shine against palladium. Palladium’s risen stardom I think is on borrowed time – on the assumption that the 2016 economic success will repeat in 2017, which clearly is not the case.”
Will auto sales remain healthy?
Passenger auto sales in the three largest markets – the USA, China and the EU – increased 8.5% last year, but Scotiabank expects sales growth to be far more modest this year.
There are signs that a down cycle in the US automotive market is emerging after a seven-year boom market.
In April, US total vehicle sales were 16.9 million units (mu) annualised, compared with 17.4 mu in April 2016, and an average of 17.5 in 2016 as a whole.
The Chinese auto market now also appears to be faltering, Commerzbank analysts noted.
According to the China Assn of Automobile Manufacturers, 1.72 million cars were sold in China in April, 3.7% less than in the same month last year.
It would appear that the reduction in tax incentives to buy cars is now having an impact on sales figures after all, Commerzbank said. The association believes that the Chinese auto industry has arrived at a critical point that could see it turn negative.
What was palladium’s strength in 2016 may be its Achilles heel this year with the auto industry looking to slow this year, Scotiabank noted.
“More downside from the auto industry is given,” Farida said. “I think reflationary trade has been priced in too far and platinum is a laggard while palladium is high on those stuff – and the nasty surprise is palladium coming crying down in pain.”
New precious contracts
Aside from the fundamentals, the new precious contracts are also likely to be debated during this year’s London meet.
The London Metal Exchange is looking to launch a PGM futures contract in early 2018 after the successful launch of its gold and silver contracts in July this year, the exchange announced during LME Week Asia earlier this week.
The gold and silver contracts will go live on July 10, and PGM futures contracts are planned for early 2018.
The PGM futures contracts are expected to use the same date structure as gold and silver.
As well, the latest announcement by the London Bullion Market Assn (LBMA) that it will publish the precious metals holdings in London vaults in a transparency push will likely be discussed at this year’s event.
The gold and silver holdings will be published from this summer while platinum and palladium holdings will come at a later date.
Who will be the new provider to operate and administer the LBMA silver price auction after CME Group and Thomson Reuters stepped down from their roles earlier this year is another theme that will likely dominate discussions next week.
CME and Thomson Reuters won the battle to provide the methodology and price platform for the daily process in July 2014, replacing the 117-year-old silver fix in August that year under sweeping reforms of the entire precious metals complex.
The silver fix or benchmark, as it is now known, is the global benchmark reference price used by central banks, miners, refiners, jewellers and the surrounding financial industry to settle silver-based contracts.
The LME, the Intercontinental Exchange (ICE), and Autilla are widely believed to be submitting proposals to become the new silver fix provider.