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.
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Platinum Watch - How low can platinum prices go?
Will the emission crisis push platinum prices below the 2008 low? We don’t think so. The global economic outlook in the major economies remains constructive and we are not that negative on China as some investors and analysts are. It is likely that on the short term the emission scandal will weigh on the platinum demand outlook though. At this moment it is unclear how this scandal will evolve further. We also remain rather positive on other sources of demand. We expect a pick-up in jewellery demand from China. Jewellery demand is as important as autocatalyst demand for the platinum outlook. In addition, we expect other industrial demand to remain positive as well. So total demand excluding investor demand will likely hold up relatively well. However, investor demand could remain negative in the near-term. Even though positions in the futures market have been reduced significantly, positions in ETFs are still substantial. Investors will likely continue to liquidate positions in the wake of a higher US dollar and the emission scandal. If we take all the above into consideration, we expect near-term weakness in platinum prices but not a re-test of the low seen during the global financial crisis. At the most, we expect platinum prices to fall to USD 850 per ounce.
Platinum price and the US dollar Platinum price
US dollar index
2,500
60 70
2,000
80 1,500
90
1,000
100 110
500
120
0
130 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Platinum price (lhs)
US dollar index (rhs)
Source: Bloomberg
ABN AMRO forecasts End period Gold Silver Platinum Palladium
01-Oct Close 14 1,114 1,185 15.7 14.6 915 1,216 798 657
Average Gold Silver Platinum Palladium
Q1 15 1,218 16.7 1,194 786
Q2 15 1,193 16.4 1,129 759
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1,184 1,172 1,050 1,000 950 900 850 800 16.6 15.7 14.5 15.0 15.5 16.0 16.5 17.0 1,141 1,081 950 1,000 1,050 1,100 1,150 1,200 736 674 550 525 500 525 550 600 Q3 15 Q4 15 1,111 1,025 15.1 14.8 1,015 975 600 538
Source: ABN AMRO Group Economics
2015 Q1 16 Q2 16 Q3 16 Q4 16 2016 1,137 975 925 875 825 900 16.0 15.3 15.8 16.3 16.8 16.0 1,078 1,025 1,075 1,125 1,175 1,100 700 513 513 538 575 534
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Platinum Watch - How low can platinum prices go?
Precious metals Gold prices per troy ounces Gold price in USD Gold price in EUR Gold price in JPY Gold price in CHF Gold price in GBP Gold price in INR Gold price in CNY Gold price in BRL Gold price in RUB Gold price in TRY Silver prices per troy ounces Silver price in USD Silver price in EUR Platinum prices per troy ounces Platinum price in USD Platinum price in EUR Platinum price in JPY Platinum price in CNY Palladium prices per troy ounces Palladium price in USD Palladium price in EUR Palladium price in JPY Palladium price in CNY Palladium price in BRL Palladium price in INR Palladium price in RUB Gold forw ard rates LBMA 1 Month Gold Forw ard Offer rate BBA LIBOR USD 1 Month Gold 1 Month Lease rate LBMA 3 Month Gold Forw ard Offer rate BBA LIBOR USD 3 Month Gold 3 Month Lease rate Volatility 1 month gold option volatility 1 month silver option volatility 1 month platinum option volatility 1 month palladium option volatility COMEX & NYMEX positions NET LONGS - GOLD (COMEX) NET LONG ON SILVER (COMEX) NET LONG ON PLATINUM (NYMEX) NET LONG ON PALLADIUM (NYMEX) Total ETF positions Total Know n ETF Holdings of Gold Total Know n ETF Holdings of Silver Total Know n ETF Holdings of Platinum Total Know n ETF Holdings of Palladium Relative Gold/Silver ratio Gold/Platinum ratio Platinum/Palladium ratio Source: Bloomberg
Close
Change 1 Day in %
Change 5 days in %
Change YTD in %
1,126 1,011 135,253 1,100 736 74,284 7,184 4,567 74,390 3,405 Last 15 13 Last 939 843 112,809 5,993 Last 617 554 74,183 3,941 2,505 40,734 40,824 Last 0.07 0.20 0.13 0.10 0.33 0.23 Last 15.06 27.47 21.66 29.95 Last 32,979 21,357 24,051 4,691 Last 48,738,334 615,782,871 2,814,020 2,876,322 Last 76.15 1.20 1.52
0.11 -0.11 0.12 0.35 0.42 0.14 0.07 0.05 -0.44 0.04 Change 1 Day in % -0.15 -0.28 Change 1 Day in % 0.33 0.17 0.41 0.40 Change 1 Day in % 0.80 0.86 1.25 1.10 1.18 1.26 0.75 Change 1 Day in % -27.78 -0.41
0.57 1.76 -0.25 1.12 1.40 -0.20 0.36 6.28 1.53 1.24 Change 5 days in % -1.08 0.45 Change 5 days in % -3.65 -2.14 -4.09 -3.49 Change 5 days in % 0.62 2.32 0.22 0.81 6.73 0.32 2.05 Change 5 days in % -13.33 -6.70
-4.98 2.96 -5.00 -6.85 -3.55 -1.06 -2.63 45.21 12.16 22.59 Change YTD in % -5.82 2.28 Change YTD in % -22.77 -16.00 -22.51 -20.55 Change YTD in % -22.72 -16.08 -22.64 -21.07 18.08 -19.42 -12.34 Change YTD in % 252.94 13.87
-13.64 2.13
5.56 -2.83
0.00 27.54
Change 1 Day in % -0.68 0.01 0.55 0.02 Change net 5 days -23,000 -4,203 -3,006 -202 Change net 5 days -13,866 -116,010 -8,128 -29,699 Change 1 Day in % 0.16 -0.30 -0.81
Change 5 days in % -3.69 -8.17 5.52 3.28 Change net 1 Month 3,031 -2,036 -116 -1,237 Change net 1 Month -91,376 -5,048,335 -33,938 -104,781 Change 5 days in % 1.29 3.99 -4.35
Change YTD in % -12.77 -7.45 32.53 38.48 Change net YTD -72,246 -12,375 -5,899 -17,327 Change net YTD -2,700,346 -7,327,977 90,126 -190,568 Change YTD in % 0.65 22.63 0.00
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Platinum Watch - How low can platinum prices go?
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