platinum

After a scorching six-month uptrend, the Global Precious Monthly Metals Index (MMI) couldn’t get any hotter even as spring officially came around the corner, finally succumbing to a cooldown in April.

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The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies dropped three points to 95 for the April reading — a 3.1% decrease — driven by a drop in palladium and platinum prices.

Even though the U.S. palladium price has cooled off a bit to begin the month of April, this marks the third month in a row it has traded higher than the gold price (even though the spread is a bit tighter).

As tracked by the MetalMiner IndX, the U.S. palladium bar price stood at $1,401 per ounce on April 1, an 8% drop from March 1.

In fact, every single constituent metal price comprising the Global Precious MMI basket — 14 in all — fell this month.

The Latest Palladium Price Outlook

According to a recent Kitco News report, BMO Capital Markets has “hiked their forecast for palladium sharply, looking for it to remain underpinned by a tight supply-demand picture and maintain a large price premium over sister metal platinum for the foreseeable future.”

The report states BMO “upped its average price forecast for palladium by 45% to $1,612.50 an ounce this year and upped its 2020 outlook by 11.3% to $1,112.50.

“As the premium over platinum continues to hit new records, there can be no doubt palladium is in a heavy market deficit at present amid stagnant supply and higher catalyst loadings for gasoline vehicles,” said BMO, as quoted by Allen Sykora of Kitco News. “And with substitution being a slow burn rather than an immediate fix, there remains decent potential for further upside. Qualifying a new catalyst is an expensive and time-consuming process, and we would expect this to occur only when the next range of vehicle models emerges.”

Sykora goes on to report “the bank figures that substitution to platinum will eventually occur, thus 2019 will be the peak for palladium prices.”

How tight is the supply market for palladium? Still as tight as we reported last month.

“‘The market is still fundamentally tight,” said Philip Newman, of the Metals Focus consultancy, as quoted by Reuters. In addition, the consultancy forecasts a 789,000-ounce shortfall this year in the 10 million ounce-a-year palladium market — and deficits of a similar size for several years after that, Reuters reported.

“Once the dust settles [on this latest downward blip for palladium], prices will start to recover,” he is quoted as saying.

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What This Means for Metal Buyers

Expect palladium prices to be relatively well-supported in the long term (over the next 6-12 months or so), if this supply strain continues.

If you’re in the midwestern U.S., chances are your March has gotten off to a more-frigid-than-normal start.

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Not so for the Global Precious Monthly Metals Index (MMI), which has gotten even hotter.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies shot up four more points to hit 98 for the March reading — a 4.3% increase — driven by a still-scorching palladium price that began its second month in a row higher than the gold price.

In fact, the U.S. palladium bar price, as tracked by the MetalMiner IndX, hit $1,522 per ounce on March 1. That level has never been seen in the history of the MMI series, which began in January 2012.

Forget your road salt or other de-icer — just throw some palladium on your slippery sidewalk, it should melt the ice in no time!

All of this is to say that the Global Precious MMI is now in a six-month uptrend.

Meanwhile, the U.S. platinum bar price rose slightly, but not nearly enough to eat into the spread with its sister platinum-group metal (PGM). The U.S. gold price faltered a bit, beginning the month at $1,312 per ounce (about $8 per ounce lower than last month). Silver prices also dropped across the four tracked geographies.

Palladium Market News and Notes

Last month, we reported that the global palladium supply shortage is still the top driver, with a shortfall of more than 1 million ounces this year and next as estimated by researchers Refinitiv GFMS, according to Reuters.

It looks as though Norilsk Nickel is getting on that forecast bandwagon as well.

Norilsk (also known as Nornickel), which produces 40% of the world’s nickel, said “in 2019 the global palladium market deficit is forecast at 800,000 ounces compared with 600,000 ounces in 2018, with consumption up by 500,000 ounces to 11.2 million ounces due to strong demand from autocatalyst producers,” according to a recent Reuters report.

“(The) spot palladium market practically dried out” in 2018, Nornickel is quoted as saying. According to the Reuters report, the company said the “supply tightness was partly eased by the release of stocks from palladium ETFs (exchange-traded funds), which fell below 1 million ounces for the first time since 2009, and from Nornickel’s Global Palladium Fund.”

Meanwhile, the World Platinum Investment Council said the global platinum market will see a surplus of 680,000 ounces in 2019 (after a surplus of 645,000 ounces in 2018), resulting from supply growth of 5%, which exceeds demand growth, according to a press release.

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All of this conspires to keep the platinum-palladium spread wider than ever.

Last month, we wrote that winter was apparently “just heating up” for the Global Precious Monthly Metals Index (MMI).

Turns out we were right.

 

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The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies shot up four points to hit 94 for the February reading — a 4.4% increase — driven by a scorching palladium price that began the month higher than the gold price (both above $1,300 per ounce).

But that wasn’t the only driver.

The U.S. silver price, as tracked by our MetalMiner IndX, bumped above $16 per ounce, the first time it reached that level since July 2018.

Gold began the month sitting pretty at $1,320 per ounce. Meanwhile, the U.S. platinum price rebounded for the February reading after its January dip, ending up at $820 per ounce.

Let’s take a moment to take that in: platinum at $820, while palladium broke the $1,300 barrier to start February at $1,325 per ounce. That represents the most massive platinum-palladium spread ($505 separating the two) in favor of palladium in the history of MetalMiner’s Monthly Metals Index, which dates back to January 2012.

It’s also the 16th straight month of palladium holding a premium over platinum.

A palladium price correction? Nowhere to be seen so far.

Latest Palladium Price Outlook

Reuters polled 29 analysts and traders just before the beginning of this month on the palladium and platinum outlook, and while the former’s prices may stagnate in 2020, these next 11 months look to be the metal’s best ever.

“The median forecast was for prices to average $1,200 an ounce this year and $1,150 in 2020 – up from $1,027 last year and only $612 in 2016, but beneath current prices around $1,350 and the record high of $1,434.50 reached earlier this month,” according to the article.

What is Driving PGM Prices?

The global palladium supply shortage is still the top driver, with a shortfall of more than 1 million ounces this year and next estimated by researchers Refinitiv GFMS, according to Reuters.

However — automotive metaphor alert — the driver that could stall the palladium price craze is a marked slowdown in major global car markets.

Automotive sales in China fell last year for the first time in three decades, and the U.S. and E.U. automotive markets are bracing for more potential slowdowns amid economic growth concerns.

Will that happen in 2019? Much remains to be seen.

For now, it seems that if buyers are buying on the spot market and could stand to somehow substitute platinum for palladium in their industrial applications, it wouldn’t hurt to look into it.

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Key Price Movers and Shakers

The U.S. silver price bumped up 3.6% to sit above $16 per ounce.

Gold began the month at $1,320 per ounce, a 5.8% increase over its Jan. 1 level.

The U.S. platinum price rebounded for the February reading after its January dip, rising 3.3% and ending up at $820 per ounce.

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MetalMiner’s Global Precious Monthly Metals Index (MMI), tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe, is now officially in a two-month uptrend this November after several months of declines.

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The Global Precious MMI came in at a value of 85 for its November 2018 reading, up 2.4% from 83 last month, continuing a steady upswing (the sub-index’s level this past September had not been seen since January 2017).

The U.S. platinum bar price sustained its own bounce-back with another spike this November. As my colleague Fouad Egbaria mentioned earlier this week, the platinum-palladium spread narrowed slightly this past month. U.S. platinum bars rose 2.6% to $835/ounce, while palladium bars fell 0.3% to $1,067/ounce.

Notably, platinum continues to stay above the $1,000 per ounce threshold, which is quite significant.

Palladium Looking Up

A couple weeks ago, palladium hit a record high — so high, in fact, that it nearly achieved parity with the gold price, something for which the platinum price has usually been in the running as the lead candidate … but not lately.

The U.S. gold price, as tracked by our MetalMiner IndX, gained slightly over last month to begin November at $1,214 per ounce.

As we’ve been continued to report in this monthly column, “a combination of factors, from tight supplies and large deficits to resurgent interest from speculative investors, has kept the platinum group metal (PGM) on the boil,” as a recent Reuters piece put it.

However, more specifically it looks as though geopolitics have been in play.

According to Reuters, fears that Russia “could restrict supplies in response to the United States’ plans to withdraw from the Intermediate-Range Nuclear Forces Treaty,” as well as the promise that a recent economic stimulus package in China will inject life into the auto markets, has contributed to spiking palladium prices.

Speaking of the auto markets, when it comes to the U.S. automakers, the platinum-palladium price differential has got analysts using the “S” word: substitution.

But even with the sustained reversal in the price relationship, car companies such as General Motors won’t be rushing to swap the two materials anytime soon.

“It’s not a flick of a switch for us,” Rahul Mital, global technical specialist, diesel aftertreatment at General Motors, said in a panel discussion at a London Bullion Market Association meeting in Boston on Monday, as quoted by Bloomberg.

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“Any time you want to make a substitution like that, it is at least 18 months to a two-year cycle if we’re going to switch. We have to be careful that by the time we do all that, price changes don’t negate the benefits,” Mital was quoted as saying.

Platinum’s Tail Already Between Its Legs

According to a different Reuters article citing a poll carried out by the news service, palladium’s price premium over platinum “will widen next year, with palladium set for its best year on record while platinum slumps to its worst performance since 2004.”

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Palladium is expected to average at $993/ounce this year, and $1,025/ounce next year, while platinum is expected to be averaging $882/ounce in 2018 and $875/ounce in 2019, according to the experts and analysts polled in the article.

Last month we noted that record-low prices characterized the Global Precious Monthly Metals Index (MMI) monthly reading and posed the question: will there be more price drops to come?

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From the looks of it, the short answer to that is … yes.

Here’s What Happened

Going by the August 2018 reading of MetalMiner’s Global Precious MMI, which tracks a basket of precious metals from across the globe, the subindex suffered a loss of 2.4%, falling to a value of 82.

The last time we saw the Global Precious MMI at that level was February 2017.

Platinum and palladium seemed to drive the loss this month, yet all major forms of precious metals across geographies ended up lower this month.

For example, the U.S. platinum bar price dropped 1.8% to $837 per ounce. Palladium is still transacting at a premium to platinum in the U.S. market, but not in the China or Japan markets (although exchange rates may ultimately be affecting that relationship). The U.S. palladium bar price dropped for August as well, down 2.1% to $928 per ounce.

Yet the U.S. silver price ended up lower than $16 per ounce to begin the month for the first time since January 2017, clocking in at $15.50 on Aug. 1. The gold price dropped as well, with U.S. gold bullion taking a 2.3% hit to end up at $1,223.40 per ounce.

All of these metals appear to be in a long-term downtrend since the tail end of 2017 and first couple months of 2018.

What Buyers Should Consider

  • A strong dollar still keeping the platinum price low. Along with supply surplus and the ever-looming threat of a global trade war, the dollar’s strength is a strong indicator of platinum’s fortunes for the rest of 2018. A recent Reuters poll of 29 analysts and traders showed that the platinum price looks to remain historically depressed for the balance of the year, with a slight rebound in 2019. “The diesel scandal remains a drag on demand … Meanwhile, currency weakness provides a lifeline to the South African platinum industry, cutting dollar-denominated costs and reducing the risk of mine closures,” said Carsten Menke, analyst for Julius Baer, as quoted by Reuters.
  • Palladium to remain at a premium? “We expect a rebound in palladium prices [in 2019] amid a growing market share of gasoline vehicles and healthy demand growth in emerging markets. Fundamentals are tight amid a widening deficit,” Intesa Sanpaolo analyst Daniela Corsini told Reuters.
  • Your latest preferred supplier — Sears? In the current economic climate that retailer finds itself in, it’s strange to hear that the company has added several brand lines sold by third-party sellers to “bolster its online marketplace,” according to a press release. Additions include “gold, silver, platinum and palladium bars, rounds and coins, as well as premium bullion products,” the release stated. So if you’re looking outside the box to source your precious metal volumes for industrial applications, take note: “Sears.com and Shop Your Way® are currently offering a $20 CASHBACK in Points when members spend $100 or more on APMEX [the online retailer of the metals] products until August 11.”

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The Global Precious MMI (Monthly Metals Index) picked up one point this month, rising to 92 for our February reading.

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Within the basket of metals, Chinese gold bullion and U.S. silver ingot/bars picked up in price. Palladium, which has bucked the historical trend by trading higher than platinum for several months now, dropped in price. Palladium still traded higher than platinum as of Feb. 1.

Palladium on the Decline

The U.S. palladium bar price moved past the platinum price last year, hitting $928/ounce as of Oct. 1 compared with $910/ounce for platinum.

This month, palladium dropped 5.8% month over month, while platinum picked up 6.2%. All in all, it seems as if the markets for the two platinum-group metals (PGMs) are moving toward the historical dynamic.

As reported by Kitco News, the palladium price has fallen three weeks in a row. Palladium’s run of trading at a premium to platinum may be coming to an end — that will be something to keep an eye on going forward.

Gold Futures Fall to 1-Month Low

One might have thought that this week’s massive equities selloff — resulting in the Dow’s biggest-ever intraday drop — would have offered support for gold, the safe-haven metal turned to in times of volatility. (VIX, the index tracking volatility, spiked on Monday and early Tuesday, in tandem with the selloff.)

The VIX index over the last month, showing the spike beginning Monday, Feb. 5, and peaking the morning of Feb. 6. Source: Chicago Board Options Exchange

However, the selloff did not seem to benefit gold. According to a MarketWatch report, gold futures hit a one-month low on Wednesday.

As of Feb. 6, the U.S. gold bullion price was $1,339/ounce, according to MetalMiner IndX data.

Gold and China

Speaking of gold, interest in the metal is picking up in China, Bloomberg reported, as a “property boom” in the country has injected life into the consumer market for the precious metal.

On the other hand, the global supply of gold plateaued last year, according to the Financial Times, and China’s output fell by 9% in 2017. According to the same report, global gold output had picked up every year since 2008 (until this past year).

Gold demand picked up in Q4 2017, according to the World Gold Council, but still declined by 7% in 2017.

“It’s not surprising to see overall gold demand down given the backdrop of monetary policy tightening and strong equity markets in 2017, but the market is not in bad shape,” said Alistair Hewitt, head of market intelligence at the World Gold Council, in a prepared statement. “The US dollar gold price was up 13% and institutional investors, especially in Europe, continued to add gold to their portfolios as a hedge against frothy asset prices and geopolitical uncertainty. Jewellery demand picked up as economic conditions improved in China and a policy change in India removed a barrier to demand, while next-generation smartphones boosted gold demand from technology companies.”

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Actual Metal Prices and Trends

The U.S. silver ingot/bar price rose 0.9% month over month to $17.305/ounce as of Feb. 1. The U.S. platinum bar price rose 6.2% to $1,000/ounce, while the U.S. palladium bar price dropped 5.8% to $1,023/ounce.

The Chinese gold bullion price rose 2.4% to $43.55/gram. The U.S. gold bullion price ticked up 2.1% to $1,345/ounce.

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This morning in metals news, the CEO of Northam Platinum indicated the platinum price is due for upward movement, raw steel production in the U.S. last week was up significantly and Chinese aluminum production was down during October.

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Platinum on the Rise?

As we’ve noted here in recent weeks, palladium has outdone platinum of late — normally, it’s the other way around.

But according to Northam Platinum CEO Paul Dunne, platinum should be on its way back up.

“We have said for a number of years from various public platforms that you would see a phased recovery with palladium running first, then rhodium, and finally platinum,” Dunne said in a report by Mining MX. “Palladium has been off to the races over the past year and the rhodium price has now started to move in recent months rising around 50%.”

Raw Steel Production Up

According to data from the American Iron and Steel Institute (AISI), U.S. raw steel production was up 9.3% for the week ending Nov. 11 compared with the same week last year.

Domestic raw steel production was 1,739,000 net tons for that week, with a capability utilization rate of 74.6%. 

Production for the week ending Nov. 11 was up 1.4% from the previous week, when production was 1,715,000 net tons and the rate of capability utilization was 73.6 percent.

Chinese Aluminum Production Drops in October

Primary aluminum production in China fell 2.3% in October from the previous month, according to a Reuters report citing government data.

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According to the report, factors contributing to the drop include high costs and the closure of illegal capacity.

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Before we head into the weekend, let’s take a look back at the week that was.

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  • Holidays in India mean an uptick in gold buying — our Sohrab Darabshaw covered India’s holiday gold surge.
  • The fourth round of renegotiation talks focused on the North American Free Trade Agreement (NAFTA) concluded earlier this week. We covered the latest round of talks, which by all accounts have the three negotiating teams at an impasse.
  • As the fallout continues from Kobe Steel’s quality data falsification scandal, our Stuart Burns wrote about what exactly might have gone wrong at Japan’s third-largest steelmaker.
  • The World Steel Association’s Short Range Outlook came out this week, predicting solid, albeit moderated growth for the global steel market.
  • Precious and base metals have been behaving similarly, our Irene Martinez Canorea wrote this week.
  • The U.S. International Trade Commission launched a new Section 337 probe related to automation systems.
  • The value of the U.S. dollar has a significant impact on the fortunes of a number of metals, our Stuart Burns explained.
  • And how about palladium? Burns also touched on the rise of the platinum group metal and its leapfrogging of platinum (for the time being).
  • It’s third-quarter earnings report time. Alcoa and Nucor were among the latest companies to announce their earnings for the latest quarter.

Free Download: The October 2017 MMI Report

The price of several metals has traditionally been looked at paired with that of another metal. For example, gold and silver prices are looked at in isolation and relative to each other, in part because both metals make up a major part of the jewelry trade.

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So, too, are zinc and lead prices, where the correlation is not from market applications but from the fact lead and zinc are often co-mined from the same resource.

Like precious metals gold and silver, less prominent platinum and palladium can be both mined and used in very similar applications. The Platinum Group Metals, or PGMs, are often magmatic in origin and rare in economic concentrations. The majority of the world’s platinum and palladium comes from South Africa, Zimbabwe and Russia, where early low-cost surface mines have long since given way to deep, expensive and complex operations.

As the name suggests, platinum as long been the investor’s favorite PGM and enjoys the widest number of applications.

Recently, however, its quiet PGM peer palladium has caught investors’ interest.

Palladium has traded at a discount to platinum because of platinum’s greater cost of extraction and its wider scope of applications. But one application in which palladium does excel is catalytic converters for petrol engines. The diesel engine’s relative loss of favor over the last 12 to 18 months to the petrol engine has boosted demand for palladium, driving up the price to the point that it exceeded that of platinum this month for the first time in 16 years.

On Monday, palladium exceeded $1,000 per ounce on the London market compared to its platinum’s $950 per ounce.

The reasons are not hard to find.

The platinum market is in surplus, but that of palladium is estimated by Joni Teves, an analyst at UBS quoted in The Telegraph, as experiencing a shortfall in production, which could push the market into a deficit of 830,000 ounces this year, as miners have cut back production.

In fact, John Meyer, analyst at SP Angel, is quoted as saying, “Marginal mine shafts have been closing at a rate of knots. We could see production in both palladium and platinum continue to fall as a result of ongoing rising costs. I don’t think the current rally (in prices) is enough to reverse that.”

Meanwhile, market demand is shifting.

Platinum that is used more in diesel engines has seen falling demand. With car sales growth featuring more in petrol-engine-dominated American and Chinese markets, and less in diesel markets like Europe, the demand bias has been for palladium, rather than platinum.

But even within Europe there is gradual shift from diesel to petrol.

Sales of diesel cars in western Europe fell from 45.1% of the market to 42.7% this year, according to industry research group LMC, with a forecast it will continue to decline to 39% by 2022 as petrol gains favor and hybrid or electric vehicle sales grow.

Some, though, are voicing caution.

Much of the enthusiasm for palladium has been investor-led — it is a small and relatively illiquid market, meaning not a large volume of positon taking is required to dramatically boost prices. Given time — and it would take time — catalysts could be altered to accommodate more platinum to the detriment of palladium demand, if the palladium price stayed at a premium to platinum over time.

In the longer term, electric vehicles are expected to sound the death knell for both metals (at least, with respect to automotive demand). Counter to this is the upcoming move by predominantly petrol engine China to increase its emission standards to the much tighter China 6a standards by 2020. Johnson Matthey says many manufacturers could leapfrog even this standard and aim to future-proof themselves to the yet more stringent China 6b standard expected in the middle of the next decade.

The enhanced PGM loadings such a move would require will maintain palladium demand — certainly well into the next decade — and could be the basis of investors’ longer-term enthusiasm for the metal.

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Either way, for the time being palladium has come out of the shadows and is having its day in the spotlight. For how long, we will have to see.

Precious metals dynamics have looked similar to base metals during these last couple of months.

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The four precious metals (gold, silver, palladium and platinum) rallied since July, and peaked in September. In September, precious metals saw a price pullback, as did the base metals.

Gold spot prices (see graph below) reflect this movement perfectly.

After the price retracement in September, gold spot prices increased again. The gold rally that started at the beginning of 2017 appears set to continue. More movements to the upside could occur for the rest of the year.

Source: MetalMiner analysis of FastMarkets

Silver prices, however, have traded sideways, showing less of a bullish sentiment than gold. However, silver has shown the same price movements (in different price ranges) from July to October (see chart below).

Does this set the foundation for a new long-term uptrend?

Source: MetalMiner analysis of FastMarkets

As Fouad Egbaria noted: “As of Oct. 1, palladium closed higher than platinum. The last time that happened? Sixteen years ago.” Palladium prices rallied, as did gold prices, while platinum prices traded sideways, similar to silver.

Palladium prices. Source: MetalMiner analysis of FastMarkets

Platinum prices. Source: MetalMiner analysis of FastMarkets

However, both palladium and platinum showed the same price pattern since July. Those price movements may point toward an ongoing bullish market.

As reported by Reuters, the commodities outlook for Q4 looks bullish. MetalMiner also remains bullish on both commodities and base metals, and expects more movements to the upside while the U.S. dollar remains weak.

Free Download: The October 2017 MMI Report

A complete analysis of commodities and base metals for 2018 is published in our free Annual Outlook report. 

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