Platinum, palladium prices set to firm up next year

Even as gold and silver prices continue to remain under pressure following distinct lack of investor interest and imminent tapering of QE in the US that will suck out excessive liquidity, investors have been looking for commodities that are likely to bring better returns.

Within the precious metals category, platinum and palladium are poised to register positive price perform in 2014 and 2015 given the developing supply side issues and demand expectations.

Supply woes

In platinum, supply uncertainties are likely to keep the market in tight balance, and possibly push to deficit. Major producer South Africa continues to face serious power crunch which affects mining companies.

“South Africa is still years behind the completion of a reliable national power supply and the government has been unable to resolve the core economic issues facing the country; and the situation makes foreign investment unattractive in the mining sector,” according to London-based consultancy Natixis.

From a demand perspective, it is expected that European car sales that are currently down may register a pick up next year on the back of a local economic rebound as austerity measures are relaxed modestly. “Increased automobile demand in Europe coupled with a reduction of mined platinum supply should help platinum move higher”, the consultancy said.

Platinum jewellery

Analysts believe platinum jewellery sales too will expand next year if the global economic growth trajectory stays upward. The metal has industrial application too. Primary and scrap supplies account for around 7.6 million ounces a year while total demand is estimated at about 8 million ounces which pushes the market into a deficit and would result in stock reduction.

Platinum prices in 2014 are forecast to reach $1,580/oz in 2014 and higher to $1,700 in 2015. Currently, platinum rules around $1,370 and its differential with gold is around $100.

This differential is likely to widen as gold prices are expected to come under further downward pressure once tapering starts, equities rebound and dollar strengthens.

Palladium in demand

Another precious metal palladium is also poised to outperform gold and silver in the next two years. The metal is used in auto-catalysts.

Expectation that new car sales in developing countries will grow at an accelerated pace in the next two years, supplemented by strong automobile sales in the US, the demand side for the metal looks healthy.

“In the US and in the developing markets, cars that run on gasoline (requiring a high proportion of palladium in their auto-catalyst) are by far the most popular models,” Natixis observed adding that from the supply side, the metal will face problems similar to platinum. South Africa produces 35 per cent of the metal.

But, Russia should be able to ramp up supplies should palladium output drop elsewhere.

Given the emerging demand-supply dynamics, palladium prices are likely to average at $760 in 2014 and higher at $790 in 2015 as the growth in automobile in India, Brazil and Russia gathers speed. Currently, palladium trades around $710.

Total supplies of palladium (including primary and scrap) are an estimated 8.8-9 million ounces, while total demand by end use is seen at 9.7-9.8 million ounces, pushing the market balance into deficit.

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