LAWRIE WILLIAMS: Is platinum in surplus or deficit? Reports contradict.
This week is Platinum Week in London and already the reports and analyses are hitting the streets. First out was GFMS with its 2016 Platinum Group Metals Survey, closely followed by the World Platinum Investment Council (WPIC) with its Q1 2016 Platinum Quarterly. Metals Focus’ Platinum Focus report is due to be launched this afternoon’
Of the two reports out so far, the main focus seems to be around whether or not there will be another platinum supply deficit this year. South Africa is pretty well back to full production after a couple of years of industrial unrest and as the supplier of around 70% of the world’s new mined platinum supply and 40% of its palladium, this is absolutely key to the state of the market. But probably what has been vexing the analysts is that despite huge supply deficits in 2014 and 2015, platinum and palladium prices have not performed as the analysts would have expected – indeed platinum and palladium were two of the worst performing commodities in the past year, despite most mainstream analysts predicting strong price rises – particularly for the latter.
So what does the current year have in store for us? More of the same perhaps? However the surge in precious metals prices led by gold has dragged the pgms up with it price wise, but not nearly as much as fundamentals might suggest. According to the GFMS figures platinum moved into a surplus in 2015, but in the medium to long terms the damage done to the industry – largely the South African mines here – is expected to drive the industry back into deficit again as industrial demand picks up.
But while GFMS figures suggest platinum supply moved back into surplus of some 265,000 ounces in 2015, WPIC numbers, researched by SFA (Oxford) suggest that there was a deficit last year and quite a substantial one at 315,000 ounces and that this year the deficit will continue to widen to 455,000 ounces.
In theory that should mean that the platinum price should move up faster than the other precious metals (except perhaps palladium which has remained in deficit for some years now without its price being positively affected). But so far this year that hasn’t proved to be the case with gold and silver outperforming the pgms. The platinum price has pretty well mirrored the gold price rise, up around 18% since the end of 2015 but palladium, for which the fundamentals would seem to be better than for any of the other precious metals is only up 5%. So much for fundamentals. Indeed this carries on from last year’s performance. At the annual LBMA price forecasting competition at the beginning of 2015 palladium was heavily tipped to be the best performing precious metal – in the event it was one of the worst performers (platinum was even worse) in a generally very bad year for the sector. So much for analysts’ predictions!
The two reports are available for download for free in full. For the 64 page GFMS analysis click on https://forms.thomsonreuters.com/gfms/ - you’ll need a corporate email address to be able to download this. The 20-page WPIC report is available for download off their website: http://www.platinuminvestment.com. Both reports contain masses of data, graphics and tabulations on specific aspects of the industry from which you can draw your own conclusions, but to this observer the fundamentals of the sector seem to have little to do with the performance of the metals prices themselves – although they should. Like all of the precious metals sector price performance appears to be driven by the futures markets which can be manipulated by big money with hidden agendas and sentiment rather than by supply/demand fundamentals. We see the pgms as generally following the path of gold and silver prices. If gold remains strong then so will the pgms and eventually maybe fundamentals will come into play, but if gold weakens through the rest of the year don’t expect pgm prices to hold up either. Precious metals investment is not an exact science!
It will be interesting to see where the Metals Focus report sees the market when this is published later this afternoon.