Palladium to outperform platinum, move towards convergence – ANZ

Otmane El Rhazi from The Bullion Desk.

Palladium will continue to outperform platinum, with the prices of the two metals moving further to convergence amid differing fundamentals, ANZ Research said.

Platinum was recently quoted at $1,149/1,155 per ounce, up $4 on Wednesday’s close and recovering from March’s sub-$1,100 lows – its softest since July 2009. Palladium, meanwhile, was last at $784/789, up $1.

“The price of the two metals should move closer to parity over the next few years, based on how we expect the market supply/demand balances to evolve,” the broker said in a note on Thursday.

“But it is likely to be a long grind rather than a quick shift. In reality, this would just be a continuation of the downtrend in the platinum/palladium ratio in place since 2009,” it added

Both markets remain exposed to industrial action in South Africa, which in recent years has had a profound effect on supply. Should there be more stikes, the impact on the palladium and platinum markets will be asymmetric, ANZ said.

Extended labour disputes last year highlighted the small scale of palladium stocks while the worlds major producers of PGMs hold ignificant platinum inventories.

“The fact that South Africa had to import palladium in 2014, but not platinum, speaks volumes to this,” ANZ said.

The country accounts for around 70 percent of global platinum production and 35 percent of the world’s palladium output.

It expects the platinum market to be oversupplied for the next three years in contrast to successive deficits in palladium.

Platinum demand is unlikely to match the increase in supply in the coming years. While it forecasts annual mine production to rise by 1.5 million ounces over the next three years, annual demand for platinum may only rise by 200,000 ounces over the same period.

Meanwhile, the palladium market looks set for deficits for the next three years, having been unbalanced since 2012. Growth in demand, particularly from the automotive sector, has not been matched by supply, while there has also been a continued accumulation of ETF holdings.

Strong autocatalyst demand will put considerable pressure on the market for an adequate supply response, the broker said. Between 2014 and 2017, it expects annual gross demand for palladium in autocatalysts to increase by 1.3 million ounces to more than 8.6 million ounces.

Global annual palladium mine supply, meanwhile, will only increase by 860,000 ounces by 2017.

 

(Editing by Mark Shaw)

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