Platinum group metals (PGMs) market analysts have expressed confusion that platinum and palladium prices have been cut in half over the past few years, while the PGM statistics they use show persistent long-term deficits in these markets.
This is according to New York-based research and consulting firm CPM Group’s latest ‘Platinum Group Metals Long-Term Outlook’ report. The 300-page study focuses on critical trends in above-ground PGM inventories, investment demand, mine production, secondary supply and fabrication demand, all of which are central to understanding price prospects for PGMs over the next ten years.
However, CPM states that a truism in all financial markets is that if one’s statistics do not agree with the price of an asset, chances are more likely that the statistics are inaccurate, rather than the market is mispricing the asset.
“Our data shows persistent long-term surpluses over the past several years, which correlate with the decline in prices,” the firm says.
The report remarks that investors are expected to play the most important role in determining the course of prices. However, the first several years of the projected ten-year period are expected to be characterised by continued surpluses for both platinum and palladium.
The company elaborates that these surpluses are larger for platinum than for palladium and are expected to add metal to the already large stocks of above-ground inventories. It is estimated that, at the end of 2016, cumulative above-ground inventories for platinum were about 13-million ounces; meanwhile, those for palladium totalled 25-million ounces.
CPM points out that, when stocks are ‘at rest’, they have a neutral impact on price. It is when they are in motion, being bought or sold that they have an impact on price. “The majority of these inventories are held by investors. Investors are expected to continue absorbing the surpluses forecast in this report; however, the weakness in supply and demand fundamentals are expected to require lower prices for investors to be induced to buy these metals for addition to their already sizeable holdings,” the firm explains.
CPM comments that the relative weakness in prices during the initial years of the projected period is expected to have a meaningful negative impact on mine supply during the out years of the forecast period.
The company says that a lack of investment in new and expansion projects, following years of weak prices, coupled with higher operating costs, particularly in South Africa, and concerns regarding future demand, are all factors expected to weigh on the volume of metal available for extraction in the later years of the forecast period.
Nonetheless, the report states that mine supply in the near term is expected to be mostly flat. Trends for platinum and palladium secondary supply are expected to diverge, with platinum supply from this source continuing the declining path that has been in place for most of the time since 2010 and palladium supply rising over the projected period.
Meanwhile, fabrication demand is forecast to rise for both platinum and palladium, with strength in palladium demand nearly twice that of platinum. CPM says that, contrary to popular market belief, alternative automotive technology, which either destroys PGM demand entirely (electric vehicles) or propels the use of platinum higher (fuel cells), is not expected to have any meaningful influence on the forecast PGM demand in this report’s base case scenario.
The firm notes that, while some of these technologies are expected to grow in importance over the course of the projected period and affect demand, they are not expected to gain sufficient traction during this timeframe to be able to derail or propel demand sharply higher or lower but to be more of a fringe influence.
“Beyond the ten years covered in our report, they are expected to have more dynamic affects on platinum demand; anticipation of such longer-term trends emerging will affect investment demand during the coming ten years, reducing investor interest in platinum,” CPM concludes.