Platinum and palladium will be the best performing precious metals next year as record global car sales will keep them in short supply for a third year, according to the most-accurate forecasters.
The metals, used in catalytic converters, will be in a shortage for the longest stretch since 2005 for platinum and 2000 for palladium, Barclays Plc and Johnson Matthey Plc data show. Platinum will gain 13 percent to average $1,635 an ounce by the fourth quarter of 2014, according to the mean of eight estimates by the most-accurate analysts tracked by Bloomberg in the past two years. Palladium will gain 10 percent to average $823 an ounce, the most for a quarter since 2001.
While gold and silver have slumped 20 percent or more because of diminishing faith in them as a store of value, investors are bullish on platinum and palladium. Growth in car sales is projected to accelerate to 4.8 percent in 2014 from 2.7 percent this year, according to LMC Automotive Ltd., at a time when metal stockpiles are contracting as mining companies fail to keep pace with demand.
“Platinum and palladium markets show the tightest supply and demand among precious metals and probably will throughout next year as well,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt and the most-accurate palladium forecaster tracked by Bloomberg over the past two years. “Industrial demand should stay high.”
Palladium rose 6 percent to $746.10 in London this year as platinum fell 6.1 percent to $1,445.60. Gold dropped 20 percent and silver 25 percent. The Standard & Poor’s GSCI gauge of 24 commodities declined 3.4 percent and the MSCI All-Country World Index of equities advanced 17 percent. The Bloomberg U.S. Treasury Bond Index lost 1.8 percent.
Platinum will average $1,500 this quarter and palladium $750, according to the Bloomberg News survey. The most-accurate list includes the top five forecasters of precious metals, and the remaining three are made up of the best analysts for gold, silver, platinum and palladium individually that provide estimates for platinum-group metals.
Holdings in exchange-traded products backed by platinum reached a record 73.3 metric tons valued at $3.4 billion on Oct. 18, according to data compiled by Bloomberg. Investment in the funds rose 61 percent since the start of the year, compared with a 28 percent slump in gold held in similar products. The amount of metal bought through palladium ETPs increased 16 percent to 67.7 tons valued at $1.63 billion.
Industrial applications account for about 60 percent of platinum consumption and 91 percent for palladium, according to London-based Johnson Matthey, which makes about one in three of the world’s catalytic converters. That contrasts with about 10 percent for gold, data from the London-based World Gold Council show.
Autocatalysts are the biggest source of demand for platinum group metals. The canisters, which have honeycomb-like surfaces that convert emissions into less harmful substances, are fitted to more than 90 percent of new passenger cars, Johnson Matthey says. Sales of cars and light commercial vehicles will reach a record 83.2 million units this year and 87.2 million in 2014, says LMC Automotive, a research company in Oxford, England.
The world economy may be the biggest threat to the gain in platinum and palladium prices. The International Monetary Fund reduced its global growth forecast for next year on Oct. 8 and now predicts 3.6 percent from 3.8 percent. The 17-nation euro area contracted for six consecutive quarters and probably did so again in the past three months, according to the mean of 29 economist estimates. The region accounts for 25 percent of platinum usage and 21 percent of palladium demand.
While demand from carmakers for both metals will advance next year, improving mine output will ease shortages. The platinum deficit will decline 59 percent to 239,000 ounces and that in palladium will narrow 16 percent to 686,000 ounces, according to Barclays. Primary supply will expand 0.4 percent for palladium and 2.1 percent for platinum, the bank says.
There are still existing stockpiles that can be tapped should mines be disrupted by strikes or natural disasters. About 80,000 ounces of platinum output was lost through such events this year, Deutsche Bank AG says. Inventories held at factories or in ETPs are equal to 1,000 days of platinum consumption and 880 days for palladium, Standard Bank Group Ltd. estimates.
South Africa and Russia account for 86 percent of platinum production and 80 percent of palladium output, according to Barclays. Primary platinum supply will rise to 5.7 million ounces next year, still less than the 6.49 million ounces in 2011, the bank says. Palladium will increase to 6.5 million ounces in 2014, below 2011’s 7.36 million ounces. Both figures exclude material from recycling.
The threat of strikes that South Africa’s government says cost mining companies as much as 15 billion rand ($1.5 billion) in revenue last year still exists. Anglo American Platinum Ltd. workers went on strike for two weeks from Sept. 27, cutting 44,000 ounces of platinum output.
Amplats, as the biggest producer is known, will report a loss of 962.4 million rand this year, after losing a record 6.7 billion rand in 2012, according to the mean of seven analyst estimates compiled by Bloomberg. Shares of the Johannesburg-based company fell 5.8 percent this year.
Hedge funds and other speculators raised bullish bets on palladium by 31 percent to 22,042 contracts this year through Sept. 24, U.S. Commodity Futures Trading Commission data show. Wagers on higher platinum prices jumped 69 percent from a 10-month low set in July. The CFTC hasn’t released figures this month due to a partial government shutdown that ended Oct. 17.
“They are the quintessential industrial-precious metals,” said Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto and the third-most accurate precious metals analyst over the past two years. “Industrial demand is key in driving prices. The big incremental moves will come from the demand side. If we get a firmer economic recovery continuing then this will bode well for industrial-precious metals.”