German technology group Heraeus Metal Management has published a precious metals forecast for 2017, highlighting that platinum remains threatened by excess supply, while demand is high for palladium, which must defend its high price level in the year ahead.

The price of palladium is expected to range from $585/oz to $850/oz, with an average value of $725/oz, and it is expected that the precious metal’s performance will continue to be dominated by the automotive industry.

Demand from this segment, which has risen significantly in recent years, has resulted in a gross demand volume of nearly eight-million ounces, which is substantially more than the primary supply from mines of about seven-million ounces. Only with the ever-increasing recycling of autocatalysts, which is now responsible for about 1.8-million ounces a year, can the gap be closed.

The automotive markets in the US and China were the main drivers of demand growth in 2016. This year, demand is likely to be much flatter. Owing to tax benefits expiring partially at the end of 2016, many car purchases in China were brought forward. The country’s car sales nowadays represent the biggest market worldwide and, though more restrained this year, will continue to increase, says Haraeus.

“In the second-most important market, the US, the positive economic environment is likely to lend continuous support to the automotive industry. It is predicted that the new administration of President Donald Trump will probably be unable to implement all proclaimed plans, therefore bearing a degree of disappointment. Taking into account the changes in other important sales regions, an overall similarly high demand should, therefore, be expected for 2017.”

In terms of platinum, the company points out that discussions about the future of the combustion engine could influence the precious metal’s price during the year. In Europe, diesel vehicles have already dropped below 50% of all new registrations.

In addition, the jewellery industry, the second- most important pillar of demand in the platinum industry, has also perceptibly sagged, giving “little reason for optimism”, Heraeus points out.

In China, the most important jewellery market, demand fell by about 20% in 2016. Though steadily growing, demand from the Indian jewellery industry was unable to compensate for the decline. However, global demand from the jewellery sector is likely to stabilise at the lower level, starting to grow again as of 2017 in single-digit values, predicts Heraeus.

On the supply side, multiyear salary agreements in the South African platinum industry have virtually eliminated the risk of possible supply shortages owing to strikes in 2017.

At the current price level of between $900/oz and $1 000/oz, more than 30 t, or one-million ounces, of a total of about 135 t, or 4.4-million ounces, is no longer profitable for the primary platinum producers in South Africa.

Consequently, Heraeus expects that the industry is likely to see slightly lower platinum production in South Africa this year, which, in the medium term, could support the price again. The high diesel shares in the European vehicle fleet, which is now nearing the end of its life cycle, will lead to a further increase in recycling volumes.

Expectations for a further depreciation of the rand and the respective higher sales prices for producers are rather medium-term orientated and, by trend, of minor impact for the forecast period.

With regard to the influence of investors, Haraeus expects only limited effect. On the one hand, fundamental data gives little incentive for new exposure, while, on the other hand, the liquidation of long positions appears to be unattractive at the current price level.

With an overall expectation of stable supply and declining demand for 2017, the industry can expect to see a slight supply surplus again. To forecast the platinum price, the platinum industry also needs to consider gold’s performance, as well as the current strong US dollar.

“We, therefore, predict platinum to trade in a range of $820/oz to $1 050/oz, with an average of $950/oz,” concludes Heraeus Metal Management.