Platinum Bounces Off 14-Year Lows
(Kitco News)- Bargain hunting is helping to support platinum pricesTuesday after the market dropped to its lowest level in 14 years.
Overnight platinum futures dropped to $800 an ounce, a pricenot seen since December 2008. However, prices have modestly recovered withOctober platinum futures last trading at $844.30 an ounce, up almost 4% on the day.
Platinum prices have dropped more than 18% since its highsat $1,033 an ounce, at the start of the year.
At it’s session lows, commodity analyst at Commerzbank notedthat, “The price discount on platinum as compared with gold has widened to arecord-high $440.”
According to some analysts, the market has been sensitive tointensifying global trade issues as the auto sector could see a significant hitfrom the U.S. government threatening to place a 20% tariff on imported carsfrom Europe.
“Market participants clearly see a risk for platinum of thetrade dispute being extended to include cars,” said Commerzbank.
The auto sector represents significant industrial demand forplatinum as the precious metal is a critical component in catalytic converters,particularly for diesel engines.
In a report, Monday, Jonathan Butler, precious metals strategistat Mitsubishi Corporation said that platinum demand from European automakers isparticularly sensitive to escalating trade tensions with the U.S.
“Fewer exports to the U.S. may show up in reduced platinumdemand since diesel vehicles make up a large share of European production, andmany models that tend to be popular in the US such as large European luxurySUVs are sold in diesel variants,” he said. “A tariff-related slowdown inEuropean SUV exports to the US may result in less platinum demand since a U.S.-madegasoline SUV may be bought in place of a European diesel.”
Within platinum group metals (PGMs), palladium has managedto hold up reasonably well as the market is trading just of three-month lows.September palladium futures last traded at $940 an ounce, up 0.60% on the day.
Palladium also has a significant industrial component as itis the critical metal in catalytic converters for gasoline engines, which areused in most vehicles in North America and China. While palladium is weatheringthe trade storm better than its sister metal, analysts have warned that a weakauto sector is not favorable for either metal.
Friday, in a letter to the U.S. Commerce Department, GeneralMotors warned that proposed tariffs on vehicles could impact its domesticproduction.
“Increased import tariffs could lead to a smaller G.M., areduced presence at home and abroad for this iconic American company, and riskless - not more - U.S. jobs,” the automaker wrote in its letter.
While palladium is currently trading at a premium toplatinum because of trade issues, analysts at Capital Economics said that theysee several factors that will eventually reverse the current trend.
In a report last week, Simona Gambarini, commoditieseconomist at the U.K.-based research firm, said that they see platinumoutperforming palladium within two years. However, long-term they see furtherweakness in PGMs as growing electrical vehicle market reduces demand forcatalytic converters.
“With anti-diesel sentiment unlikely to dissipate anytimesoon, we expect the price of platinum to continue to trade at a discount topalladium until 2020 when a combination of demand and supply factors shouldpush it back to a slight premium,” she said in her report.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.