PGM’s Analysis and Forecast Report Q2 2014

May 9, 2014 - 1:28 PM GMT

Overview of the PGM Market in Q2 2014

Each Quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the Precious and Base Metals. Below is the PGM report, to read the full report covering all the metals in pdf form click here: Quarterly Metals Report April 2014. Subscribers to FastMarkets Professional have access to the report before it is published here.


While the platinum group metals (PGMs) broadly reflected underlying movements across the metal complex in the first quarter, there was a greater degree of individual fundamental factors driving prices.


A mix of trade buying and fund short covering drove platinum higher early in the first quarter, reaching $1,472 per ounce by January 20. Despite the start of co-ordinated industrial action by Association of Mineworkers and Construction Union (AMCU) members in South Africa on January 23, platinum gave back ground towards the end of the month amid renewed signs of slowing manufacturing activity in China.

Prices turned higher in February, however, when speculative buying/short covering outweighed investor long liquidation. Platinum peaked at $1,488/oz on March 5 when wage negotiations in South Africa collapsed but subsequently turned lower, reflecting general risk-off trading following the Russian military action in Crimea.

Echoing the moves of platinum, palladium initially tested higher, rising to $753 per ounce by January 17. Despite positive vehicle sales figures from Europe and China, the metal remained capped at $750, turning lower late in January in line with platinum.

Palladium tracked platinum in February, recovering to $745 by the end of the month from a low of $696 on February 4. But the PGMs diverged in March, with palladium finding additional upside momentum that propelled it to its highest since August 2011.

While US vehicle sales figures for February disappointed for a second month, palladium climbed in early March following the seizure of key buildings in the Crimean capital by pro-Russian gunmen. As the sabre-rattling between Russia and the West intensified, palladium took flight on speculation of possible trade sanctions that would hit supply already constrained by strikes in South Africa.

Palladium paused around $780 in mid-March but pushed higher on March 21 on news that two physically backed ETFs – the delayed NewPalladium fund from Absa and the Africa Palladium fund from Standard Bank – would roll out in South Africa before the end of the month.

Current situation

Platinum gained a modest 2.9 percent in the first quarter after running into stale long selling late in March, testing briefly below $1,400. It has since turned higher, fuelled by strong ETF inflows in South Africa and signs that strikes are starting to affect impact market availability – Anglo Platinum and Lonmin have declared force majeure on suppliers and Impala Platinum may have to start buying metal on the open market.

Palladium is currently off its March 24 peak of $801 but is testing higher again in early April, fuelled by ETF-related demand and stronger US light truck sales for March.

Summary of outlook for 2014

We had expected the supply side to provide an element of upside price risk in 2014, reflecting the South Africa strikes and the view that Russian state palladium stocks are nearly exhausted. Indeed, these supply risk appear to have intensified since our previous report, with disruptions in South Africa exacerbated by the introduction of sanctions by the EU/US against key Russian and Ukrainian individuals. Any extension of sanctions would probably include import/export bans, with firms such as Gazprom and Norilsk Nickel potentially high on the list.

These supply risks stand against a backdrop of improving, albeit uneven, signals of macroeconomic activity, supporting a stronger demand outlook for both platinum and palladium. This will stem primarily from auto sales growth, particularly in gasoline-dominant markets such as China and the US.

Stronger demand is also anticipated from jewellery demand and more industrial applications such as glass and chemical manufacturing. The combination of stronger demand growth and supply disruption will only serve to tighten fundamentals, putting further reliance on above-ground stocks.

Supply outlook

Supply has been an area of much consternation in early 2014, with much of the focus on South Africa. In an early boost to the clarity of the outlook, members of the National Union of Mineworkers (Num) at Northam Platinum accepted an improved pay offer, ending an 11-week strike at its Zondereinde mine. Northam attributed an operating loss of some 99 million rand, its first loss in 15 years, to the strike.

However, the positive news proved fleeting when AMCU members launched co-ordinated industrial action at (Amplats), Implats and Lonmin on January 23.

Despite efforts by state mediators, the gap in pay negotiations between the union and producers remains wide. More than 70,000 workers remain on strike at the time of writing.

While the three largest producers continue to meet their production commitments, the strike has resulted in the loss of some 520,000 ounces of platinum and will soon surpass the 544,121 ounces lost in the 2012 strikes, according to data from the Chamber of Mines.

Overall, the buffer of producer stocks in South Africa continues to decline; this is starting to show up in the market, where platinum sponge premiums have risen to some $7. The situation in South Africa is becoming additional, with Amplats and Lonmin forced to declare force majeure on their suppliers (not on PGM supply to customers) and Impala Platinum mooting the possibility of buying metal on the open market to meet its commitments.

Elsewhere the supply picture remains somewhat mixed. Platinum miners in Zimbabwe have dodged a potential crisis by submitting “concrete plans” for a platinum refinery in early January, avoiding a ban on the export of raw metal to South Africa. Meanwhile, escalating tensions between Russia and the West over Ukraine have sparked speculation of trade sanctions, although these seem unlikely given Europe’s dependence on Russian gas.

Firmer price will help increase scrap supplies from areas such as jewellery. Stronger auto sales in areas such as China, the US and also Europe also suggest higher supplies from spent auto-cats.

Demand outlook

The latest vehicle sales figures support the view of stronger PGM demand from the auto-catalyst sector in 2014.

While much of the growth has been in gasoline-dominant markets such as China, a modest recovery in Europe should bolster platinum demand as well, with around 40-50 percent of vehicle sales in Europe powered by diesel engines.

Chinese vehicle sales hit a record 2.15 million units in January, the latest figures from the China Association of Automobile Manufacturers (CAAM) show, with January-February sales up 10.7 percent on the first two months 2013.

US sales have been sluggish, though, with passenger vehicle sales down 3.6 percent in the first quarter, reflecting the harsh winter weather. But this has been offset by growth in light-truck sales, up 6.7 percent year-on-year. The slight shift to larger vehicles implies larger PGM loadings.

January-February sales in Europe rose 6.6 percent on 2013 levels, building on the recovery that emerged late last year.

Investment demand should remain a swing factor for PGM fundamentals, particularly given the launch of the AfricaPalladium and NewPalladium funds in South Africa, which have accumulated some 50,000 ounces of holdings since inception.

The initial reaction to the co-ordinated strikes in South Africa saw some disinvestment from stale longs. But fresh inflows have emerged in response to the lengthening disruptions and Russian sanction speculation, with net platinum holdings reaching a new all-time record of 2.58 million ounces. Net palladium holdings are down 40,200
ounces after heavy liquidation totalling 81,400 ounces in February.

Stronger economic growth should bolster jewellery demand, although higher import duties in India may temper consumption there. Stronger manufacturing activity should also boost demand from other industrial sources.


The PGMs, particularly palladium, are set to outperform both gold and silver on the year, with palladium to prove the strongest of the four precious metals in 2014.

In light of recent price moves and with little sign that wage disputes in South Africa will be resolved soon, we have raised our trading range forecasts for this year, with both metals facing further substantial deficits.

We forecast platinum to trade at $1,350-1,650 per ounce, up from $1,280-1,650, and palladium at $700-900 per ounce, up from $660-862, supported by growth in global vehicle sales and supply disruptions.

Still, the increasing scale of speculative and investor exposure to the complex leaves both metals vulnerable to sharp corrections once the supply situation improves.