Last month, in our headline for the monthly update article on the Global Precious MMI, we called out the fact that platinum and palladium prices had dropped. Then we asked: “Will it continue?”
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Well folks, if our Magic 8-Ball were to answer, it’d say — signs point to yes.
At least for this month’s index reading.
With losses in U.S. platinum and palladium pricing leading the way, our Global Precious Monthly Metals Index (MMI), tracking a basket of precious metals from across the globe, floated down yet again for April — dropping 1.1% and settling into a two-month downtrend.
(Last month, we had initially reported that before March’s drop, the index had been in a two-month uptrend. Correction: it had in fact been in a four-month uptrend at that point.)
Both stock markets and commodities markets have been in a bit of turmoil lately, with President Trump implementing tariffs on steel, aluminum and potentially 1,300 categories’ worth of additional Chinese imports mid-last month, and China coming back with retaliatory tariffs on a number of non-metal U.S. commodity exports.
It wouldn’t be a stretch to say that knock-on effects are being seen in the precious metals markets.
PGMs Lead the Way
Gold prices in the U.S., China and India were slightly up on the month (with the Japan price holding relatively steady), and even silver prices in China and India increased.
Yet platinum and palladium prices told a different story.
Both platinum and palladium bar prices dropped across all geographies (U.S., Japan, China) — the U.S. platinum bar price sunk 3.5% and the U.S. palladium bar price fell 3.2%.
The longer-term picture for platinum as a crucial component of industrial manufacturing continues to get murkier.
According to a Reuters interview with Bart Biebuyck, executive director of the European Commission’s fuel cell and hydrogen joint undertaking, “the volume of platinum used in fuel cell-powered cars could be cut to ‘micro levels’ within three years and eradicated altogether in a decade’s time, making these environmentally-friendly vehicles much cheaper to buy.”
He said the amount of platinum in the next generation of fuel cell cars had already been cut to levels similar to that used in the catalytic converters of diesel vehicles, which industry estimates put at 3-7 grams, according to Reuters.
With the automotive industry — which accounts for about 40% of platinum demand — looking to cut costs, that 3-to-7-gram range for diesel vehicles may steadily but surely decrease in coming years. That’s because, as we reported last month, the gradual but very real retirement of diesel engines across the European continent continued.
A German court ruled that cities have the right to ban diesel cars from driving the roads in certain areas. Of course, the Volkswagen scandal and its aftermath proved to be a big blow for diesel cars, as well.
If more diesel engines go extinct, with them will go corresponding PGM consumption for catalytic converters.
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Taras Berezowsky
Global Precious MMI: Will Drop in Platinum, Palladium Prices Continue?
Our Global Precious Monthly Metals Index (MMI), tracking a basket of precious metals from across the globe, floated back down 3.3% after a two-month uptrend.
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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?
PGM Spotlight
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.
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Global Precious MMI: Sub-Index Continues Rise as Palladium Outpaces Platinum Again
Here’s What Happened
- Our Global Precious Monthly Metals Index (MMI), tracking a basket of precious metals from across the globe, rose yet another three points to 90 for the January reading, a 3.4% increase.
- We’re officially in a three-month rising trend for our precious metal sub-index. The last time we saw this buildup was back in Q3 2017, after which the index retreated. If that pattern holds, we could see a drop-off, perhaps as early as February — although seasonality and the global political and economic atmosphere in Q4 both likely had a lot to do with the outcome, which may not be replicated here in Q1 2018.
- Palladium officially busted through the $1,000 per ounce ceiling in December, and there were no signs of a turnaround for the January reading — the PGM per-ounce held above that level for the second straight month. (More on palladium below.)
- Meanwhile, it appears as though platinum will need to take advantage of a “Dry January.” The metal came out of the holidays very sluggish, recording only a $2 per ounce increase and beginning the new year in a rather flat state of malaise.
- “We’ve (still) got a trend, folks!” — this is the fourth straight month in which palladium is priced at a premium to platinum, which has not been the historical norm.
- And then there’s gold. After breaking and holding above the $1,300 per ounce threshold at the beginning of September for the first time since October 2016, the U.S. gold price is back above that benchmark after a few months off.
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What’s Going On in the Background?
- Can palladium keep rising? That all depends. On the one hand, the supply market is pretty tight, and it has been for a while. In fact, the palladium market has been in deficit for the last six of seven years in which data is available, according to a good Reuters piece published just after the new year. On the other hand, the primary thing driving palladium demand, and therefore prices, is mainly Chinese automotive demand. Caveat: if that slows down or even goes in reverse (car puns are just the best, aren’t they?), palladium could go with it. As we reported earlier this week, a Wall Street Journal story pointed out Chinese consumers are now starting to get into used car sales even more, which could portend the end of unmitigated new car sales growth — much like China’s GDP cooldown over the last few years. To wit, here’s a sweet graphic showing the relationship between palladium and China’s automotive sales:
Source: Thomson Reuters[/caption]
- Germans buying up some gold. Regarding that $1,300/ounce threshold we mentioned earlier that gold prices have been hovering above for a couple months straight? That has helped spot gold prices gain about 14% during 2017. Now, at least one nation — going by its recent investment activity — is hoping that upward trend continues. According to another Reuters article, Deutsche Boerse said its Xetra-Gold notes rose in demand to a record 175 tons of gold, a nearly 50% increase over 2016. Safe haven, here we come! (Ja?)
What Metal Buyers Should Look Out For
- PGMs. While ETF Securities, an investment and intelligence firm, which we used to cover quite regularly, expects precious metals (including PGMs) to remain pretty stable for the course of 2018 in its Outlook 2018 report, as we noted last month, keep a close eye on All Things China. This is especially important as it pertains to automotive partnerships between U.S. OEMs and China and the resulting innovation, as my colleague Fouad Egbaria reported earlier this week in our Automotive Monthly Metals Index (MMI).
- ICYMI, our own Irene Martinez Canorea drilled down into the gold markets before the end of 2017 from an analytical perspective, ultimately unlocking the reason why industrial metal buyers (especially those buying copper) should pay attention to gold.
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