Email of the day (1)
Comment of the Day

February 18 2013

Commentary by Eoin Treacy

Email of the day (1)

on platinum and palladium
“I recently read an excellent article explaining the supply problems facing platinum and especially palladium - the following link I thought I should share with the collective and is most enlightening:

“This explains why both Palladium and Platinum are up 7% from the beginning of this year to the end of last week, and why they are outperforming gold (-5%) and silver (-3%)

“I attach an article from GS which shows that they too favour Palladium with a price target of $1,050. Given the very severe supply shortages, it seems likely that the price of Palladium and to a lesser extent Platinum, will continue to rise.”

Eoin Treacy's view Thank you for this informative email which I'm sure will be of interest to subscribers. Here is a section from the report you attached which is dated January 16th:

Palladium: For palladium we reiterate our bullish view on prices as production cuts in South Africa by Anglo American (c.150k oz) and the lack of a supply response from Russia (Norilsk) or North America (Stillwater) is expected to result in a deficit over the short to medium term, even allowing significant ongoing sales from Russian stocks.

Our ongoing thesis is that palladium demand will grow in the autos sector due to: a) majority of growth in global automotive coming from gasoline (petrol) markets (e.g. US, China); b) palladium continuing to substitute for platinum in diesel markets due to technology improvements; and c) implementation of Euro 6 emissions regulations in Europe seeing a subtle shift back to gasoline (petrol) from diesel, as auto makers seek to minimise implementation costs. This is expected to combine with increased demand from the broader industrial sector on stronger global GDP. Thus we believe palladium will outperform platinum over 2013-2015, and reiterate our 2013-2015 forecasts of $781/$925/$1,000/oz respectively. Other reasons to be bullish on palladium are the scope for further disruption to South African supply as well as the potential for reduced sales from Russia stockpiles.

The palladium/platinum ratio has been ranging mostly between 0.4 and 0.45 since early 2011 and is currently trading towards the upper boundary. A sustained move above 0.45 would be required to confirm more than short-term potential for outperformance by palladium.

In absolute terms palladium continues to hold a progression of higher reaction lows and a sustained move below $740 would be required to signal a deeper reaction. Platinum has been largely rangebound since 2011 and continues to pause near the upper boundary in the region of $1700. A sustained move above $1725 will be required to confirm a return to medium-term demand dominance.

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