Platinum Price Hits Over Two-year Low on Stronger Dollar

Platinum found itself under pressure after trade tensions and fears of a slowdown in global growth pushed the precious metal to its lowest level since early 2016 on Tuesday (June 19).

At the last session, platinum sunk to US$854.50 per ounce, which was the metal’s sharpest decline since February 3, 2016.

“Platinum still suffers from the diesel emission scandal and faces a depreciating South African rand, which lowers dollar-denominated costs [for] South African producers,” Julius Baer said in a note.  

Adding, “[w]hile the market should remain well supplied against this backdrop, we believe this is reflected in extremely negative sentiment in the futures market.”

The ongoing trade tensions have reinforced concerns over global growth and triggered a selloff in equities, while boosting safe-haven currencies like the US dollar.

This is not the first time that platinum has seen significant declines in 2018. According to FocusEconomics, the first week of June saw the precious metal closing in on historically low levels.

“On June 8, platinum traded at US$901 per ounce, one of the lowest prices since the beginning of the year. The print was 1.1 percent lower than on the same day last month, and was 2.8 percent lower on a year-to-date basis. Moreover, the price was down 4.7 percent from the same day in 2017,” the report notes.

Platinum prices have also been restrained by supply exceeding demand, leaving the market in surplus.

“The shift away from diesel-run vehicles to electric-powered alternatives, aimed at curbing pollution levels, has reduced demand for platinum; the precious metal is used in the catalytic converters of diesel-powered cars,” states FocusEconomics.

While supply has been outpacing demand, it has also fallen considerably over the past few years due to the closures of unprofitable mines in South Africa —the world’s largest source of the precious metal.

“The mines have been shut due to a sustained lack of capital expenditure that has bumped up maintenance costs. A drop in recycling supply from autocatalyst and jewelry has also contributed to the total stock declining,” states a World Platinum Investment Council (WPIC) report.  

According to the report, refined production fell by 0.7 percent year-on-year to 1,405,000 ounces in Q1 2018.

“The platinum market is expected to move further into surplus as lower demand due to reduced auto catalyst consumption and less investment buying outweigh higher industrial demand,” FocusEconomics says.

Looking forward, analysts recently polled by FocusEconomics forecast prices will average around US$971 per ounce in Q4 2018. Prices are expected to continue to rise to an average of US$1,050 per ounce by Q4 2019.

As of 12:53 p.m. EST on Wednesday (June 20), platinum was trading at US$872.00 per ounce.

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