Platinum on Track for Seventh Consecutive Annual Decline

The price of platinum has been on a steady decline in 2018, slipping from around US$1,000 an ounce in January to where it currently sits at around US$820—down 4.7 percent from the same day in 2017.

According to many analysts and market insiders, the precious metal is on course for its seventh consecutive annual decline and lowest annual average since 2005.

“Amid persistently weak fundamentals, recovery potential should be limited for platinum,” said Julius Baer analyst Carsten Menke.

“The diesel scandal remains a drag on demand … meanwhile, currency weakness provides a lifeline to the South African platinum industry, cutting dollar-denominated costs and reducing the risk of mine closures,” he added.

Demand for diesel engines, which use more platinum than petrol engines, began its decline after Volkswagen (FWB:VOW) was found in 2015 to have cheated in emissions tests.

This has led to platinum 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,” stated FocusEconomics.

With the current price of platinum, mine profits for top producer South Africa have been hurt, which has added to the speculation that car companies may substitute in more platinum for sister metal palladium in autocatalysts.

Some South African miners have already been forced to close operations due to declining prices causing unprofitable shafts. Lonmin (LSE:LMI) will cut 12,600 jobs over the next three years and Impala Platinum Holdings (JSE:IMP) noted that the company is currently reviewing its Rustenburg complex, due to the fact that only three of the ten shafts were making money as of March.

“We don’t expect mines to close in the short term,” said Mark Fellows, head of mine supply at Metals Focus in London.

“We’re expecting shaft closures, but not necessarily full mine closures, from the second half of 2019. In the meantime producers seem to be playing a game of chicken, encouraged by rand weakness,” he added.

Despite the declines and bearish forecast, some insiders believe that the market is close to a bottom and the price of platinum could actually be poised for a rebound because of that.

“Platinum could bounce back if speculative investors who have built the largest net short position in Nymex platinum for at least two decades decide prices have hit bottom,” said Standard Chartered (LSE:STAN) analyst Suki Cooper.

“The extreme positioning suggests scope for short-covering activity if prices stabilize or demand data picks up,” she added.

According to Reuters poll of 29 analysts and traders, platinum is forecast to average around US$922 in 2018.

As of 3:02 p.m. EST on Thursday (July 25), platinum was trading at US$824.00 per ounce.

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