Fundamental factors to the fore for PGMs – Citi

Otmane El Rhazi from The Bullion Desk.

The differing market fundamentals of platinum and palladium are more important to its direction that their relationship to the dollar, Citi said.

The bank would favour going long on palladium and short on platinum over the next six months, it said in a weekly report. Platinum recently traded at $1,097/1,102 per ounce, up $5 on Friday’s close, while palladium was $2 higher at $749/755.

Reduced expectations for a deficit in platinum this year are weighing on the metal, it said. It sees a rebound in mine supply of close to 20 percent in volumes this year, limiting its projection of a 2015 market deficit to 327,000 ounces – a level easily filled by above-ground stocks.

In palladium, the bank sees mine supply rebounding in 2015 by 11 percent to 6.7 million ounces after 2014′s strike-related contraction, resulting in 1.2-million-ounce deficit.

In the autocatalyst sector, growth in emerging markets is poised to outpace developed markets this year

China auto sales will grow seven percent to 25.1 million units this year, similar to growth in 2014, according to the China Association of Automobile Manufacturers. The bank believes there remains significant pent-up demand for US auto sales, projecting full-year sales to push above 17 million units.

It sees mildly positive uptake in palladium in the eurozone where several key regions such as France and UK have announced measures to curb the use of diesel engines in congested city areas, it said.

Meanwhile, platinum continues to trade at a widening discount to gold thanks to the threat of above-ground stocks – these could be as large as 4 million ounces, which is “more than adequate availability of the metal to meet demand”, it said.

If gold were to see further weakness this year, an additional drag on platinum is likely to follow – this suggests platinum may not recover to its historical premium over gold until the fundamentals improve.

But its widening discount to gold could stoke retail demand, enable platinum prices to bottom out, it added.

In China, the 11-percent decline in platinum imports so far this year indicates that end-users are drawing down stocks that were built up in 2014.

As China nears the end of this destock phase, platinum could support as imports resume but robust mine supply and a strengthening dollar make this unlikely, Citi said.

(Editing by Mark Shaw)

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