LPPM WEEK – Downbeat tone dominates platinum week so far

May 21, 2015 - 3:57 PM GMT

Platinum market sentiment looks set to remain downbeat following events so far at this year’s LPPM Week where participants are increasingly frustrated.

“[But] this is nothing new – people have been frustrated with this market for a long time. I don’t see that changing any time soon,” one delegate told FastMarkets on the sidelines.

The World Platinum Investment Council set the tone for this week when it suggested in its quarterly report that the predicted deficit for 2015 may not be as big as initially expected.

The WPIC, formed in 2014, revised its predicted deficit for this year to 190,000 ounces – 72 percent below its estimated 2014 shortfall of 670,000 ounces and well below other analysts’ estimates for this year nearer the 700,000-ounce mark.

“The revelation of lower expected deficits, as industry experts published supply and demand estimates, did not help,” UBS’ Edel Tully and Joni Teves noted this morning. “And we think the acute focus on above-ground stocks may only have added to the overall confusion.”

Sizeable above-ground stocks are often cited as the primary reason for platinum’s failure to react to the current fundamental deficit – a thought echoed by CPM Group’s Jeffrey Christian earlier this week.

There were 12 million ounces of refined platinum in above-ground stocks at the end of 2014, he estimates.

“It has become a hot topic because above-ground inventories are the major reason why platinum prices have been so weak since 2012,” he said.

Prices are now down 50 percent at $1,150 per ounce since the all-time peaks hit in 2008 at $2,300. The metal recently struck its lowest since the post-peak crash during 2008/2009 at $1,080.

Even during the heights of last year’s five-month strike in South Africa that skewed annual production figures, platinum peaked at just $1,520 – it had started the year at $1,371 and closed it 12 percent lower at $1,206.

But UBS’ Tully and Teves described the negativity towards platinum as “overdone” and see a change on the horizon.

“The world economy is in a better position than it was in 2009, and regardless of how much above-ground stock is out there, current levels should be lower, especially considering strike-related production losses last year,” they said.

An eventual rise in the price is inevitable because of an impending imbalance in the market, SFA Oxford’s Stephen Forrest said. According to SFA Oxford’s calculations, the market is trading below the average break-even price of $1,250 per ounce.

“We don’t believe that there is a trap-door below this price – we are very near the bottom of a cycle,” he said.

In contrast, many agreed with GFMS’ assessment that platinum could test $1,000 per ounce.

“I wouldn’t be surprised at all to see $1,000 soon – I can’t really see EU diesel demand really creating a bullish case,” one delegate said.

“Despite improvements, it is difficult to get too excited about the European car sales market at the moment,” SocGen’s Robin Bhar told FastMarkets. “Unless European car sales start motoring, I don’t see any reason platinum will take off.”

At a press briefing with Macquarie on Thursday, the bank said that while demand for cars has improved, demand for diesel-fuelled cars has not kept pace – sales – European car sales rose 8.6 percent year-on-year in the first four months of the year but diesel car sales have risen just five percent and are losing market share, it said.

(Editing by Mark Shaw)