Morgan Stanley PGM Price Outlook

The platinum price has dropped roughly 5.7 percent, or $69, since the start of the year, and at $1,143 per ounce, the white metal is now cheaper than gold.

Still, Tom Price and Joel Crane at Morgan Stanley (NYSE:MS) believe things might not be looking so bad for platinum in the near term. In a report put out on this week, the firm cites weak supply growth in South Africa and robust global auto demand as factors that could “offer a basis for higher short- to medium-term prices.”

That said, Morgan Stanley has also cut its price forecast for several metals and bulk commodities due to weak demand from China, and platinum was not spared. The firm lowered its 2015 price prediction for platinum by 11 percent, to $1,223, a price it notes is 8 percent lower than consensus predictions. Not surprisingly, the story is more positive for palladium — Morgan Stanley has set its price forecast for platinum’s sister metal at $871 per ounce, or 4 percent higher than consensus estimates.

Positives and negatives

On the one hand, the report states that the near-term outlook for platinum remains subdued. The past three months have seen negative growth year-over-year in platinum imports for China, while investment interest has been liquidated and recycled supply is still offsetting higher autocatalyst demand. Others have noted the negative effect of lower platinum and palladium demand on prices for the metals as well, and according to the Financial Times, net platinum imports for China dropped 56 percent in February, putting them at their lowest level since 2009.

Beyond that, Morgan Stanley points in its report to the strong US dollar as hurting the platinum price given the historical inverse relationship between the two; furthermore, a weaker rand has delayed South Africa production cuts.

On the other hand, the firm notes a “small, persistent deficit from 2015,″ excluding ETF flows, and states that according to its analysis, “at current spot prices … 26% of the Southern African industry is cash cost negative.” Certainly, both of those factors could be good for platinum. That said, Morgan Stanley also cautions that continued weakness in the rand could allow companies to continue at a lower platinum price.

On the palladium front, the firm states that an ongoing structural deficit has made the relative strength of the metal unsurprising. “The palladium market remains in a structural deficit which continues to result in the ongoing drawdown of above ground stockpiles,” the note reads. Morgan Stanley sees palladium demand remaining strong in 2015, and forecasts increased auto sales growth year-over-year of 3 percent for North America and 7 percent for China.

Overall, Morgan Stanley is calling for a 1.3x platinum to palladium ratio for 2016, and believes that risk to its forecast “lies to the upside for palladium over the next couple of years.” However, it also cautions that the metals could be vulnerable to technological substitution and states that higher prices could incentivize recycled supply; those factors have led the firm to remain cautious on its outlook for the platinum-group metals.

Companies up year to date

Despite a lower platinum price, there are still a few companies focused on platinum-group metals that have seen their share prices perform well so far in 2015:

• North American Palladium (TSX:PDL) has gained 83 percent so far in 2015 to trade at $0.285. The company increased the resources at its Lac des Iles project in Ontario earlier this year.
• Platinum Group Metals (TSX:PTM) has seen its share price increase 23 percent, to $0.68, so far in 2015.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.

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