PLATINUM TODAY: Rebound showing signs of stalling

Sep 20, 2018 - 10:40 AM GMT
by

 

Outlook:

Short term:

Up
Medium term: Flat
Long term: Up
Resistances:
R1 795 20 DMA
R2 803 40 DMA
R3 846 100 DMA
R4 857 Jun 22 lows
R5 901 200 DMA
R6
924 DTL from Aug 2011 high
Support:
S1 932 Mar 2017 low
S2 901 200 DMA
S3 873 Dec 2017 lows
S4 811 Jan 2016 low
S5 803 40 DMA
S6

S7

795 20 DMA

745 Oct 2008 low

Stochastics:
Fast line stalled
Legend:
 

BB – Bollinger band
COT – commitment of traders
DMA – Daily moving average
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
UTL – uptrend line
H&S – head-and-shoulder pattern
RSI – relative strength index

 


Analysis

  • Platinum has staged a modest short-covering rebound from a low of $766 per oz on September 4, reclaiming the 20, 40 and 55 DMAs, which are likely to provide immediate support.
  • Momentum indicators remain supportive; the RSI has risen to 60 and stochastics remain positive, although the fast line has flattened, reflecting the stalled price momentum.
  • Prices have run into overhead resistance ahead of the DTL from the January 25 high, which stands ahead of the 100 DMA at $846 per oz.
  • Further support is pegged at the October 2008 low at $745 per oz, but the large descending triangle on the monthly chart (inset), suggests platinum could extend lower, with the next support around $600 per oz.

Macro drivers
Short-covering has featured among Nymex speculators; Commitments of Traders data showed Nymex funds cut their open shorts by 2,642 contracts or 5.1% in the week to September 11. Despite this, current positioning remains bearish as net length stands at -10,976 contracts.

Despite the price rout, there has been only limited evidence of dip-buying among investors. Exchange-traded fund (ETF) holdings total 2.370 million oz compared with 2.257 million oz in early July.

Despite slowing sales in the United States and China, the world’s two-largest vehicle markets, light vehicle sale globally continue to carry positive momentum rising 2.7% year on year in August, according to LMC Automotive. Sales globally were up 3.1% year on year in January-August.

Platinum demand has suffered as a result of falling demand for diesel-engine vehicles, sales of which dropped 16% in January-June compared with same period of last year, according to the European Automobile Manufacturers’ Association (ACEA). Autocatalyst demand also faces potentially huge headwinds in the long term, resulting from the electric vehicle revolution.

The impact of weaker demand and robust supply are set to keep the market in a surplus, which the World Platinum Investment Council (WPIC) forecasts will total 295,000 ounces in 2018, up from the 180,000-oz surplus forecast in May.

Impala Platinum, the world’s second-largest platinum producer, plans to cut future production by 30% over the next two years following its strategic review. Impala will close a total of five mines, cutting annual production to 520,000 oz from around 750,000 oz currently.

The Association of Mineworkers and Construction Union has threatened industrial action in response, as well as calling on the government to nationalize the five mine shafts that Impala has proposed closing.

Other producers are in the process of restructuring their operations. Lonmin is in the process of closing old mines and developing newer, lower-cost operations. Yet greater supply restraint is necessary to break the weak price sentiment.

Conclusion
A modest short-covering rebound is underway and given the scale of fund shorts could fuel further gains. But failure to vault DTL resistance around $830 per oz and the 100 DMA risks renewing bearish sentiment, particularly in view of the negative fundamental backdrop. We maintain a breach below the October 2008 low at $745 per oz risks a deeper retracement towards $600 per oz.

 

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.