Financial services firm UBS expects platinum to trade higher over the next 12 months if global automotive manufacturers can overcome the supply deficit that resulted from manufacturing and raw material hurdles, which will result in increased vehicle manufacturing and drive demand for the metal.
However, the firm notes that platinum has come under pressure after the most recent US Federal Reserve meeting, which supported the dollar. It adds that the commodity’s lower liquidity compared with gold and market concerns that rate hikes could weigh on economic growth, have also not helped.
Platinum industrial demand accounts for about 60% of the commodity’s total demand and economic concerns are not supportive of the precious metals, states UBS.
Another factor that continues to limit the upside for platinum is the global semiconductor chip shortage, with the car industry suffering a major impact as a result of significant production setbacks.
UBS notes that some market estimates forecast a production outage upward of two-million vehicles, impacting mostly the North American and Chinese markets, which therefore is most negative for palladium, which is used in gasoline cars.
The firm also notes that lower vehicle production in Europe will also impact on platinum demand for catalytic converters in diesel cars to some extent.
Considering these factors, the less supportive fundamental backdrop means investment demand has been relegated to the sidelines, states UBS.
Nonetheless, economic growth should remain solid over the coming months, supporting industrial demand for platinum, while new catalytic converters (reducing the amount of palladium in favour of cheaper platinum) being installed in new gasoline-powered cars should also be price supportive going into 2022, the firm suggests.
COPPER
UBS expects global copper demand to grow by 4.9% this year, and by 4.4% in 2022, while supply is not expected to grow substantially from new projects this year.
As such, the firm is targeting a refined supply increase of only 1.4% this year, and 5.1% in 2022, leaving the copper market undersupplied by 603 000 t (2.4% of yearly demand) this year, and 461 000 t (1.8% of yearly demand) in 2022.
UBS reports that China’s effort to curb commodity prices has coincided with disappointing copper activity data from the country, and while the level of economic growth remains strong, slowing Chinese credit activity raises fears over waning copper demand.
This was exacerbated by a stronger dollar following the Federal Reserve’s “hawkish pivot” contributing to the weakness, according to the firm.
Although copper is likely to face near-term pressure, UBS expects prices to rise again once China’s domestic destocking cycle ends and onshore physical demand recovers.
Going forward and beyond these short-term demand shifts, the firm believes the cyclical and structural story for copper remains intact.
UBS states that this backdrop should enable prices to recover to $11 000/t over the next 6 to 12 months.