Sunday, 8 July 2018

Platinum scalp at the shorter's belt

White precious metals lagging gold

Despite gold selling off last few weeks, the damage among "white precious metals" has been worse.
The gold sell-off was discussed last week, as the yellow metal was nearing its December 2017 low, which it eventually equalled on July 2nd.

Platinum

The real horror story of 2018 is platinum. Longs were lured into a false recovery as price pressure was alleviating end December '17 and platinum enjoyed a rally extending into 2018. The rally brought platinum back to a four digit price, regaining parity with palladium. All ended in tears:  in a horrendous slide, this densest of all metals not only dipped below its 2017 low, at $848/oz it also came within reach of its bear market low by the end of June. The gold to platinum ratio rose to 1.47.

Gold to platinum ratio in the first half of 2018.
Speculators force the platinum price down, factoring in lower demand by car manufacturers as diesel engines are losing market share (currently the platinum off-take is for catalytic converters is about 40% of total demand). This off-take by car manufacturers also is a determining the potential of physical platinum recovery.

Shorters were determined to take platinum down beneath its bear market bottom ($814). Ultimately they succeeded with the metal bottoming at $796 during the Hong Kong trading session on July 3rd. Intraday volatility has been extreme: Platinum rallied from its $796 bottom to $842, closing the session at $839 on Comex.

24 hours platinum price from the start of trading on Sunday evening July 1st (Monday in Sydney) with Platinum bottoming at $796 during the Hong Kong trading session on July 3rd  (01:30 am in NY).

With demand decreasing, production volume may adapt as well as price has ...

Mine supply disruption is what's luring behind the corner. At current market prices only the Russian platinum production (which is a secondary production of the Norilsk nickel mine) remains profitable. Unfortunately it only contributes 21 tonnes or about 11% to global mine production. 

Average platinum production cost from 2013 till 2016 for the main producing countries (click to enlarge)
The platinum production cost in South Africa stood at $975/oz in 2016. With 140 tonnes in 2017, South Africa contributes to nearly 70% of global production.

Palladium

If there's anything keeping platinum producers afloat, it must be the still relatively strong Palladium price. Invariably palladium is a secondary product in platinum mines. North American producers have a more Palladium rich ore than South African producers do.

Gold to Palladium ratio since December 2017.  (click to enlarge)
Palladium peaked above $1100 mid January 2018. Meanwhile its price is back in the triple digits, closing at $948 on Friday June 29. At 1.48, the Au:Pd ratio peaked in the first half of April as Palladium briefly slid to $900. Car manufacturers use over 85% of global Palladium production for catalytic converters for gasoline engines. Global production includes recovery from spent catalyzers since mine production falls short of total demand. This metal is a 'one trick pony' when compared to the more widely used Platinum.

Silver

We're now extending our view to the last precious metal. The early 2018 gold rally was not followed by silver, with the Gold:Silver ratio rising as silver couldn't catch up with gold. The ratio left behind 80 peaking at 83. The USD rally from mid April onward hurt gold but much less silver. The ratio slid back to 75.5, near to where we started off in 2018. However after the June FED rate hike, silver sympathized with gold, leveraging down its slide. Gold now is down 3.8% year-to-date, while silver slid 4.8%. The Au:Ag ratio crept up to 77.84 by the Friday June 29 close.

Gold to silver ratio in the first half of 2018.  (click to enlarge)


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