(Kitco News) - The price of platinum group metals should climb as a result of strikes in the South African mining sector, strong global auto output and good jewelry demand in China, said HSBC.
The bank did not revise its previous 2014 forecasts for platinum and palladium in a report released late Thursday, leaving them at averages of $1,595 and $825 an ounce, respectively. Nevertheless, these averages are above current prices. The 2015 forecasts were left at $1,850 for platinum and $900 for palladium.
HSBC listed three factors underpinning platinum, starting with a strike by the Association of Mineworkers and Construction Union against three major producers. A little more than 60% of South Africa’s platinum production, accounting for 45% of global output, has been shut down by the labor action since late January.
“The strikes are further aggravating already tight production from South Africa and contributing to the market’s production/consumption deficit,” HSBC said. “Second, we expect good demand from the European auto sector, where the more popular diesel-powered engines require heavier platinum loadings than gasoline engines. Third, we anticipate further
strength in jewelry demand from China as its growing middle class continues to seek out luxury goods.”
strength in jewelry demand from China as its growing middle class continues to seek out luxury goods.”
The auto sector uses PGMs for catalytic converters. China, meanwhile, is the world’s largest buyer of platinum jewelry.
The bank now looks for a platinum supply/demand deficit of 705,000 ounces in 2014, compared to its November forecast for a deficit of 402,000. While the 10-week-old strike in South Africa plays a role, HSBC said it would have expected a deficit even without the labor action. Further, supply deficits are likely to mean greater investor participation in exchange-traded products that are backed by platinum, HSBC said.
“So far, producer stockpiles have been sufficient to cover the loss in output due to industrial action,” the bank said. “However, we believe that ongoing structural persistent deficits going forward will eventually drive prices higher. Currently, however, low lease rates for platinum imply there is no immediate shortage of material.”
Meanwhile, HSBC said supplies are also “constrained” for palladium, with auto demand rising in the key markets of the U.S. and China. Cars in these two nations tend to be gasoline-powered, which rely upon palladium.
“We expect that persistent supply/demand deficits based on the impact of the South African strikes and declining Russian stockpile sales and
relatively stagnant mine output in that country will lend support to palladium prices,” HSBC said. “Additionally, we anticipate that investor recognition of tightening supply/demand balances will elicit a positive response from investors.”
relatively stagnant mine output in that country will lend support to palladium prices,” HSBC said. “Additionally, we anticipate that investor recognition of tightening supply/demand balances will elicit a positive response from investors.”
HSBC trimmed its previous forecast for the supply deficit in palladium, but still looks for demand to outstrip supplies by 959,000 ounces this year, well up from a 455,000-ounce deficit in 2013.
By Allen Sykora of Kitco News; asykora@kitco.com
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