Excess supply could derail platinum’s rebound

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May 13, 2019 12:57pm NYSE:PPLT

NYSE:PPLT | News, Ratings, and Charts

From Peter Hobson: LONDON, May 13 (Reuters) – Investors have poured cash into bets that platinum prices will revive after a decade of declines, but excess supply is likely to keep a lid on gains.

Once the precious metal with the highest price tag, worth more than $2,000 an ounce in 2008, platinum has plunged below palladium and gold.

Used mainly in vehicle exhausts to reduce harmful emissions and for jewellery, platinum sank to a 10-year low of $751.25 last year as falling demand led to oversupply.

But some investors are betting demand will revive, and that a rising gold price will pull platinum up in its slip stream.

“Longer term, price pressures are likely to be on the upside,” Standard Chartered analyst Suki Cooper said.

Holdings of platinum in exchange-traded funds (ETFs) tracked by data company Refinitiv have jumped 512,000 ounces, or 26 percent, from a December low to a record high.

On the NYMEX exchange, bets by speculators on higher prices now outnumber bets on lower prices by 28,693 contracts, equivalent to 1.4 million ounces. As recently as February, most bets were on price falls.

These inflows have helped to raise the platinum price by about 8 percent this year to around $855 an ounce.

“If you have an investment horizon of two years or more, platinum is a buying opportunity,” Commerzbank analyst Carsten Fritsch said.

Reuters’ polls of analysts and traders last month predicted average platinum prices of $865 this year and $925 in 2020.

Sales of diesel-powered vehicles, which use more platinum than gasoline engines, are stabilising after rapid falls following Volkswagen’s “dieselgate” scandal in 2015, Fritsch said.

Tightening emissions standards also mean more platinum will be used per vehicle.

Helping platinum to recover will be a rising gold price as global economic growth becomes more fragile and interest rates remain low, ABN AMRO analyst Georgette Boele said.

Gold is traditionally seen as a safe investment in times of economic uncertainty, and is more attractive to investors when low interest rates restrain yields on other assets such as bonds. Gold and platinum prices tend to move together.

Platinum’s technical picture has also improved after it rose above a long-term downtrend.

Also helping the investment case are expectations that automakers will replace some palladium with platinum in gasoline engines after palladium prices surged to record highs. Also, there are hopes that production of vehicles powered by fuel cells containing platinum will increase.

But there is no evidence yet that automakers are switching to platinum, while fuel cell manufacturers are reducing their use of the metal.

And behind everything lurks the risk that the market will remain oversupplied.

Consultancy Metals Focus on Monday forecast a surplus of 630,000 ounces in the roughly 8-million ounce a year platinum market this year – the fourth consecutive annual surplus.

The World Platinum Investment Council, which expects higher investment demand than Metals Focus, predicted a 375,000-ounce surplus.

Slowing global economic growth may also keep a lid on demand. Car sales in key markets including Europe, China and the United States are falling. Autos account for around 40 percent of platinum consumption.

“There is upside (for platinum) — but that upside will be contained because of the fundamentals,” UBS analyst Joni Teves said.

“The picture still isn’t really positive for platinum. It’s hard to get overly excited.”

The Aberdeen Standard Physical Platinum Shares ETF (PPLT) was trading at $80.74 per share on Monday afternoon, down $1.04 (-1.27%). Year-to-date, PPLT has declined -8.74%, versus a 5.57% rise in the benchmark S&P 500 index during the same period.

PPLT currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #12 of 35 ETFs in the Precious Metals ETFs category.

This article is brought to you courtesy of Reuters.

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