August 1, 2019 / 12:13 PM / 23 days ago

Palladium primed for record highs as oversupply batters platinum - Reuters poll

LONDON (Reuters) - Palladium is expected to widen its lead over sister metal platinum to a whopping $619 an ounce on average this year and $595 an ounce in 2020, a Reuters poll showed on Thursday.

FILE PHOTO: Ingots of 99.97 percent pure palladium are stored at a plant owned by Krastsvetmet, one of the world's biggest manufacturers of non-ferrous metals, in Krasnoyarsk, Russia April 9, 2019. REUTERS/Ilya Naymushin

Once by far the more expensive of the two metals, both primarily used in vehicle exhausts to reduce harmful emissions, platinum’s market value has halved since 2011.

It has faced weakening demand and oversupply, while an acute deficit has more than tripled the cost of palladium since 2016.

The poll of 24 analysts and traders showed they had become significantly more bullish on palladium and more bearish on platinum since a similar survey three months ago.

The median forecast for platinum was for prices to average $848 this year - the lowest annual average since 2004 - and $905 in 2020. COMMODS-PLAT

Palladium’s median forecast was for an average of $1,467 this year and $1,500 in 2020 - the two highest annual averages on record. COMMODS-PALL

Graphic: Platinum and palladium prices - tmsnrt.rs/2yppdM3

“Palladium has been the shining star of the precious metals suite. We expect palladium to continue to outperform,” said Saida Litosh at GFMS, Refinitiv.

The roughly 10 million ounce a year palladium market will have a deficit of 1.8 million ounces in 2019 and 1.9 million ounces next year, she said.

That compares to a 200,000 ounce surplus in the roughly 8 million ounce a year platinum market that will rise to 300,000 ounces next year, she added.

With vehicle sales slowing, tighter emission standards are helping demand. These rules are aiding palladium more, however, because that metal is preferred for gasoline engines, whose market share has grown since a diesel emissions scandal in 2015.

Meanwhile, predictions that automakers will begin to switch to platinum to save money show little sign of coming true.

“Significant supply growth (in palladium) is not expected to materialise until 2023-24 despite record prices, and despite softening car sales, palladium demand has continued to grow,” Standard Chartered analyst Suki Cooper said.

“Elevated investor interest makes the market susceptible to profit-taking but dips are likely to be viewed as buying opportunities,” she said.

She forecast a deficit of 770,000 ounces for the palladium market and a surplus of 422,000 ounces for platinum in 2020.

Speculative activity in palladium has remained relatively muted, suggesting industrial demand is behind much of the price rally.

That contrasts with platinum, where investors have piled into exchange-traded funds this year, swelling their holdings by some 600,000 ounces - around 30% - to the highest on record.

This inflow has helped lift prices some 8% this year to around $860 an ounce, but since it is unlikely to be sustained without further gains, prices are likely to slip, Daniela Corsini at Intesa Sanpaolo said.

“We are bearish on platinum,” she said. “In our opinion, the rally has been mainly driven by speculative activities and we think that the weak supply and demand fundamentals will now prevail.”

Graphic: PALLADIUM VS PLATINUM AND GOLD - tmsnrt.rs/2Tjew6i

Reporting by Peter Hobson and K. Sathya Narayanan; Additional reporting by Nallur Sethuraman and Asha Sistla; Editing by Dale Hudson

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