Friday, January 3, 2014
In addition to a continued supply deficit for Platinum, the supply/demand outlook for its sister metal, Palladium, also appears bullish. Palladium is expected to end 2013 with a supply deficit of over 700,000 ounces, as increased demand for the metal for pollution control continues to increase. In addition, sales of Palladium stockpiles by the Russian Government have been decreasing during the past few years, with analysts estimating that only about 100,000 ounces were sold in 2013. This amount is well below the nearly 2 million ounces supplied in the past, and was a major contributor in keeping the supply/demand picture towards equilibrium. Now that Russian sales seem to be on a downward trend, this key supplier of Palladium will be of diminished importance, and we may see a Palladium deficit of over 1 million ounces in the coming years.
The title of today's Xpresso seems to fit the current trading environment for the precious metals sector, where long liquidation selling in Gold has spilled over to the more industrial of the precious metals group, especially Platinum, and to a lesser extent Palladium, despite supply and demand fundamentals that are not all that bearish. Platinum supplies are not expected to keep up with demand in 2014, with analysts estimating a supply deficit of between 400,000 and 500,000 ounces in 2014. An expected increase in automotive demand next year is expected to increase Platinum's usage in catalytic convertors, with rising pollution levels in major Chinese cities forcing the Chinese government to begin to deal with air pollution problems, which would likely be bullish for both Platinum and Palladium demand in the coming years. While the demand side looks positive for Platinum prices, the supply side of the equation is more variable. Analysts are divided on potential production levels for Platinum in 2014, with the prospects of labor strikes in South Africa potentially curtailing output. Current lower Platinum prices may make some mining operations uneconomical, which could further limit new supplies. However, Platinum supplies from recycling efforts have prevented Platinum inventories from falling to critically low levels. Should the continued global economic recovery surprise to the upside in 2014, we could start to see the Platinum market start to trade on its own merits, and finally move out of the shadow of its more infamous cousin Gold.
Continuing our longer-term technical outlook for commodities, we are looking at the weekly continuation chart for Platinum futures, where we notice prices have begun to consolidate after the wild price swings seen between 2007 and 2009. Despite prices currently trading nearly 50% below all-time highs, the market has moved into a new price zone the past 10 years, after trading in a relatively narrow, by current price standards, $500-wide band the previous 30 years! This is a similar price scenario that we have seen in many other commodity markets, which does seem contrary to government data that supports the opinion that current inflation levels are muted.
Mike Zarembski, Senior Commodity Analyst