Platinum, Palladium ETFs Caught in Risk-Off Trade

June 6th at 7:00am by Tom Lydon

While platinum prices and exchange traded funds are dipping back to where they started at the beginning of the year, supply disruptions and higher automobile demand may support the platinum market. However, short-term global risk may constrain the markets in the near-term.

ETFS Physical Platinum Shares ETF (NYSEArca: PPLT) is up 1.6% year-to-date and the ETFS Physical Palladium Shares ETF (NYSEArca: PALL) is down 6.8% year-to-date.

Spot platinum was at about $1,433 per ounce Monday and spot palladium was at $614 per ounce.

According to Barclays Plc, global platinum will diminish 4% to 6.14 million ounces this year, the first drop in mining supply in four years, due to labor strikes and safety concerns in South Africa, the largest producer of the metal, reports Nicholas Larkin for Bloomberg.

Analysts predict that platinum will average $1,750 an ounce in the fourth quarter as a result of the diminished supply and record car sales, the largest source of demand for platinum. [The Outlook for Palladium, Platinum ETFs]

“Platinum is very, very cheap at the moment,” Thorsten Proettel, an analyst at Landesbank Baden-Wuerttemberg, said in the article. “It’s more the supply side which could help the platinum price accelerate because supply is very tight.”

Currently, it costs about $1,437 to extract an ounce of platinum, Proettel noted. With current platinum prices, it is not profitable for miners to continue expanding.

“The absence of supply side production constraints, coupled with the generalised rise in risk aversion may constrain upside price potential in the near-term,” according to a ETF Securities precious metals report.

Barclays also projects that platinum demand will grow 1% this year, but it may fall short as economic growth slows. LMC Automotive Ltd. estimates that global car and light commercial vehicle sales will expand 5.5% to a record 79.4 million units this year.

“China re-introduces car subsidies for rural residents,” ETF Securities said. “As most autos sold in China run on gasoline rather than diesel, continued robust China auto sales is particularly bullish for palladium, the main metal used in gasoline autocatalysts.”

After platinum prices averaged an all-time high of $1,721 last year, car-makers have implemented more palladium into autocatalysts – palladium makes up about 30% of metal loaded into catalytic converters for diesel engines, up from 20% in 2009.

“The future outlook for palladium is excellent as it continues to benefit from positive supply and demand fundamentals,” said North America Palladium CFO Jeff Swinoga in a Minyanville report Tuesday.

ETFS Physical Platinum Shares ETF

For more information on either precious metal, visit our palladium or platinum category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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