UBS cuts PGMs price forecasts on supply growth, investor indifference

Otmane El Rhazi from The Bullion Desk.

UBS has slashed its price forecasts for both platinum and palladium this year because of higher availability and a decline in investor sentiment, it said.

For 2015, the bank cut its platinum price forecast to $1,160 per ounce from $1,280 previous. Spot metal was last at $1,033, having slumped to a February 2009 low of $1,010 earlier.

The bank now expects a smaller deficit in platinum of 354,000 ounces for 2015, down from 744,000 ounces previously.

“The lack of evidence of market tightness, in spite of supply disruptions in South Africa last year, suggests that there is more metal around than initially thought. That platinum has been under pressure rightly reflects the need to make these fundamental adjustments,” it said.

Still, the extent of the weakness might be becoming overdone – overly stretched short positioning on Nymex suggests poor investor sentiment has also weighed on prices to the extent that may no longer be fully justified by the fundamentals, UBS also said.

Still, the extreme short positioning makes the market vulnerable to upside risks, raising the potential for a short squeeze.

UBS also cut its palladium price forecast to $770 from $850 previously. The metal was last at $660, having earlier dropped to $630 – its lowest since June 2013.

In recent weeks, significant additions to short positioning have driven prices lower – the metal has fallen 20 percent since May. The price has been volatile in the last few years, rising as much as 470 percent to last year’s highs above $900 from its 2008 lows.

“The general uptrend can be justified by fundamentals. However, the palladium market is relatively small and liquidity can often become an issue – this suggests that investor positioning is naturally prone to becoming overextended relatively quickly and price action can easily be overdone,” the bank said.

Strong gains in the Nymex palladium net length have typically been followed by violent washouts, which clearly  illustrates this market feature, it added.

Eurozone risks such as the uncertainty surrounding Greece and its ability to remain in the eurozone are also not helping – palladium typically underperforms during periods of uncertainty

 

(Editing by X)

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