PGMs analysis and forecast for Q3 2015

Aug 4, 2015 - 10:10 AM GMT
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Each Quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the Precious and Base Metals. Below is the PGM’s report, to read the full report covering all the metals in pdf form click here.

Subscribers have access to these reports before they are published through the research tab in FastMarkets Professional.

PGMs – Dollar strength tests investor confidence

Summary

Prices have been under significant pressure since May, driven by large above-ground stocks, weak investment demand and higher mine production. While both markets are likely to be in deficit this year, we believe that the sell-off in PGMs will reverse later this year, with palladium outperforming platinum, the caveat being further weakness in auto sales.

Platinum Q3 2015 - historical price chart 2012-2015

Palladium Q3 2015 - historical price chart

Overall trend – Platinum and palladium fell sharply in the second quarter, dropping 5.5 percent and 8.5 percent respectively. So far this year, platinum is down 11 percent and palladium 15 percent.

Weakness driven by poor sentiment – ETF investors have remained net sellers of palladium and platinum this year so far, while money managers also have slashed their net long exposure to the PGMs. Palladium prices have been more adversely affected than platinum, confirming the tendency of the former to underperform the latter when investors become risk-averse. But we believe prices will rebound later this year due to constructive fundamentals. Palladium should outperform platinum, reflecting a stronger global automotive market – palladium benefits more than platinum because the market accounts for 75 percent of palladium demand versus 40 percent for platinum – and the emergence of anti-diesel sentiment in Europe.

Supply remains a downside risk – In addition to investor concerns about large above-ground inventory, especially the size of Russian stocks, mine output is recovering at a faster pace than expected this year. While mine production slumped in 2014 owing to a five-month strike in South Africa, supply constraints have eased since the start of the year so mine output could continue to increase, driven in part by lower domestic costs from declines in the rand and energy prices.

Platinum Q3 2015 - ETF holdings and spec posistioning on NYMEX

ETF investors sold 42,211 ounces of platinum in the first half after accumulating about 105,000 ounces in 2014. Similarly, speculators have reduced their net long position by 527,700 ounces this year to the lowest level since May 2012.

Palladium Q3 2015 - ETF holdings and spec positioning on NYMEX 2012 - 2015

ETF investors liquidated 111,463 ounces of palladium in the first six months of the year after buying around 893,000 ounces last year. Speculators have lowered their net long position by 878,000 ounces in the year to date to the lowest level since February 2014.