Commodities | Apr 27 2006
By Greg Peel
Global precious metal consultancy GFMS released its respected gold report earlier in the month, and this week saw the release of the Platinum and Palladium Survey 2006.
Platinum group metals (PGMs) are very scarce creatures used in specific applications dependent on price, and prices tend to be very volatile. Scarcity is reflected in the fact that the prices of PGMs often exceed that of gold, and volatility is only exacerbated by the fact that most of the world’s PGM supplies come from South Africa and Russia (although Canada, Australia and Zimbabwe chip in as well).
As precious metals, platinum and palladium in particular enjoy interest from the jewellery market, but the real boost to prices came around 2000 when emission regulations in Western countries significantly increased demand for autocatalysts. Palladium was preferred first, such that the price shot from under US$400/oz in 1999 to over US$1000/oz in about 18 months.
The high price of palladium affected both an increase in production and a switch to platinum by autocatalyst producers which thus saw the palladium price collapse again while platinum steadily picked up the pace, having also been priced at under US$400/oz in 1999.
Today platinum has hit record highs of around US$1130/oz while palladium has resurged 40% this year to be around US$365/oz. Recent price gains can be put down mostly to investor interest during the gold price bull run.
Barclays Capital Research calls the GFMS survey a "timely reality check" for the two metals. All in all, the fundamentals were mixed.
Supplies of the two PGMs both increased over 2005, with expanding South African production driving platinum up 4%, and a rush to recycle old autocatalysts (due to the price recovery) pushing palladium up 6%.
A further tightening of emission controls increased demand for platinum in autocatalysts, but this was more than offset by a 24% fall in 2005 in jewellery demand, particularly in the biggest market (yep – China). Total demand thus eased 4%.
With platinum at all-time highs, demand for palladium jewellery rose an equivalent 23% in 2005, mostly in you know where. Autocatalyst demand also stabilised having fallen for a few years. Palladium demand increased 6%.
It seems these two metals are destined to play push-me-pull-you for eternity. While palladium has now become fashionable in the jewellery stakes, and has re-emerged in the autocatalyst stakes, the fact remains there is a significant overhang of supply and destocking will likely keep the metal in surplus in 2006. Platinum, on the other hand, was in deficit but has returned to balance, but Barclay’s points out low inventories will likely make the metal susceptible to supply disruptions.
GFMS suggests the return to small surplus of platinum will see the price trade in a range of US$980-1250/oz while the palladium surplus will hold prices in the US$250-400/oz range.
These fundamentals look the least bit bullish in base metal terms, but the PGMs are "precious", and the silver experience just goes to show that consumption has little effect on price when stacked up against investor demand. Thus Barclays holds the view price risk for PGMs is in fact very much on the upside.