Platinum Week in BREXIT
8 Mar 20190 comments
For the past 50 years Platinum, Palladium and Rhodium have enjoyed the spotlight during “Platinum Week” in London. In the heyday of the early 2,000's this platinum week was a major global event. Indeed, it was reflecting the numerous industrial and geopolitical challenges of that time. At that moment, Platinum costed $2,000/T.oz., Palladium $1,000/T.oz. and Rhodium upwards of $10,000/T.oz.
A decline in interest...
Now, though, interest has declined in line with the decline in prices. Since 2008, the price of Platinum has never stopped falling. This is mainly due to decreases in both diesel engine sales and jewelry business, especially in China. On the other hand, Rhodium is barely worth more than Platinum. As for Palladium, it relies almost totally on speculation, experiencing growth from healthy gasoline-quelled engine growth, yet suffering in the jewelry sector on account of its dull, less-glittering color.
An uncertain future for PGM
From the production perspective, the future is equally uncertain; mainly due to the mining industry which is confronted with rising production costs that are now close to current market prices. Key Russian producer, Norilsk, is fortunate in possessing mines that are rich in nickel and copper, as well as Platinum Group Metals (PGMs), and is thus able to continue to operate with decent profit margins. South African producers, however, continue to suffer as a result of low-profitability mines and inefficient techniques - South Africa produces Platinum in the ratio just 2:1 against Palladium compared with Russia’s 4.5:1. Thus there is a lack of a common strategy that could bring some regulation to OPEP production, and there are some that believe the situation will not be resolved until South Africa, with the highest - and most uneconomic - cost structure, withdraws from the market.
The importance of catalytic converters recycling
Encouraged by several crises in the sector, catalytic converter recycling has become an important component in the PGM market. With only half of all cats being recycled, there is substantial further growth potential for recyclers. However, this assumes that the metals’ prices exceed recycling costs; further declines in market prices could lead to the collapse of the recycling sector. If, as is possible, Palladium rises to over $800/T.oz., Platinum drops to under $900/T.oz. and Rhodium stabilizes at around $900/T.oz., this effective price parity would signify the start of a new period, both confusing and thrilling! For this to happen, diesel engine sales need to continue to decline, with gasoline-powered engines being the beneficiary.
London Platinum Week used to excel in gathering the market actors so they could network over several days. But, like Brexit, something has broken; as Brexit has broken the City’s dynamic, so Platinum and Palladium may have lost their industrial influence. As the City’s market place is becoming less attractive, it is similarly conceivable that Platinum and Palladium will attract fewer investors.
Source: Didier Julienne / Natural resources strategist.
Translated from "Les Echos" French article.