Last month, as my colleague Fouad Egbaria wrote, the platinum-palladium relationship began to reflect its traditional historical dynamic. This month, that trend continues for the two platinum-group metals (PGMs), with U.S. platinum falling 3.6% and U.S. palladium falling 4.2% — below $1,000 per ounce to start the month for the first time since November 2017.
The backdrop of President Trump announcing tariffs on steel and aluminum imports late last week — with more specifics yet to come, continuing an uncertain climate — has forced a broader commodity selloff, which has swept precious metals such as gold into its current, according to Michael Kosares, founder of gold broker USAGOLD, as quoted in a MarketWatch article.
“Once we get through the initial reaction, gold’s appeal as an inflation hedge will likely reassert itself,” he is quoted as saying.
Concerns arose over whether other industrial metals also would get hit as a result of the steel and aluminum tariffs announcement, including precious-metal workhorses platinum and palladium.
“The announcement raised fears there could be retaliation and hit the price of stocks and all industrial metals,” said Phil Flynn, senior market analyst at Price Futures Group, as quoted in the MarketWatch article. There’s also “fear that higher costs for cars could reduce demand” for the metals, according to the article.
So, where will the platinum-palladium trend go from here?
Although both platinum and palladium may see a slightly extended cooldown in the near term, the longer term could see more price increases — especially for the latter metal.
Broader supply-demand market fundamentals look to underpin the two metals’ movements into the next year and beyond. According to Johnson Matthey, as reported by Reuters, platinum looks to be headed for another surplus in 2018. (Last year’s oversupply clocked in at 110,000 ounces.)
“Before accounting for investment, we expect global platinum consumption to rise slightly,” Reuters quoted Johnson Matthey as saying. “However, this will be matched by a modest increase in combined primary and secondary supplies, mainly due to rising recoveries from autocatalyst scrap,” it said. “Assuming that investment demand in 2018 is similar to last year, the market is likely to remain in modest surplus,” the firm added, according to Reuters.
On the palladium front, the market was expected to remain in deficit, Johnson Matthey said.
“Automotive demand, which rose 6 percent last year to 8.424 million ounces, was expected to hit another record high next year, in line with a rise in gasoline vehicle output,” according to the Reuters piece. “Supply, which declined 2 percent last year, was expected to rise slightly, but the market was set to remain in deficit after recording a shortfall of 629,000 ounces last year.”
The gradual but very real retirement of diesel engines across the European continent continued as well. A German court ruled that cities have the right to ban diesel cars from driving the roads in certain areas. If more diesel engines go extinct, with them will go corresponding PGM consumption for catalytic converters.
Key Price Movers and Shakers
- The U.S. palladium bar price dropped 4.2% over last month to end up at $980 per ounce, its first dip under the $1,000 threshold since November 2017.
- The U.S gold bullion price dropped 2.1%, leaving it at $1,317 per ounce.
- The Japanese gold, silver, platinum and palladium prices all increased, likely due to the dollar-yen exchange rate, perhaps providing an arbitrage opportunity for buyers.