Platinum Watch
Group Economics Macro & Financial Markets Research
How low can platinum prices go?
Georgette Boele, tel,+31 20 6297789
1 October 2015 • • • •
Will platinum prices go as low as during the Global Financial Crisis (GFC)? There are quite some similarities… …but the two main differences are the global economy and investor positioning We expect near-term weakness in prices but not as low as during the GFC
How low can platinum prices go?
platinum cheaper if other costs don’t increase materially.
Since the emission scandal for hit the news, platinum prices
Second, it is likely that lower energy prices provide less of an
have dropped by more than 5% and palladium prices rallied by
incentive to consumers to buy diesel cars because driving in
more than 8%. This substantial divergence reflects
general is less costly. Another similarity between the Global
expectations of investors that the platinum demand outlook will
Financial Crisis and the current situation is that the US dollar
be negatively affected and that consumers from now on will
has been strong.
favour gasoline cars instead of diesel cars. This week, platinum prices dropped to a low just above USD 900 per
Platinum and oil prices
ounce. The main question is how low can platinum prices go?
Platinum price
Could they drop below the low seen during the Global
Brent oil price
2,500
Financial Crisis of USD 786.5 per ounce? To answer this question we go back to the environment of the Global Financial
2,000
Crisis (GFC).
1,500
160 140 120 100 80 60 40 20 0
1,000
Platinum demand
500
In thousand troy ounce
8,000
0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
6,000
Platinum price (lhs)
4,000
Brent oil (rhs)
Source: Bloomberg
2,000
Differences between the GFC and now? 0 05
06
07
08
09
10
11
12
13
Autocatalysts
Jewellery
Retail investment
Other industrial demand
14
There are also important differences. An important difference is that speculative positioning in platinum was dwarfed by the open speculative positions that existed in July 2014 before the sell-off in platinum had started. In short, the sell-off in platinum
Source: Thomson Reuters Datastream GFMS
prices during the Global Financial Crisis was mainly the result because on expectations of very weak industrial platinum
What are the similarities between the GFC and now? During the Global Financial Crisis, the economic outlook deteriorated dramatically pushing major economies into a recession. As a result, demand for commodities that thrive on the well-being of the global economy fell sharply. In the years 2008 and 2009 global platinum demand dropped from 7,969 million ounces to 6,751 million ounces or 18%. In addition, the sharp fall in platinum prices coincided with a sharp fall in oil prices. This affects the platinum outlook in two different ways. First, energy accounts for substantial part of the total costs to mine platinum. So lower energy costs will make mining of
demand. In contrast, since July 2014 platinum price weakness has mainly be the result of investors abandoning the precious metal. Indirectly expectations about the global economy play an important role, but the economic outlook can in no-way be compared with the meltdown in 2008. Since July 2014, investors have liquidated positions that more than exceed the total demand destruction during the Global Financial Crisis.