Platinum and palladium: Bears and bulls
Carsten Menke, Commodities Research Analyst, Julius Baer
The early days of a month provide important insights into the demand backdrop for platinum and palladium from automotive catalysts as many countries release car sales data. Due to its dominant application in diesel-fuelled cars, platinum is strongly exposed to the European markets. The decline in diesel-market share, resulting from the diesel emission scandal continued at an accelerated pace in May, down more than 5 percentage points compared to last year. Potential driving bans in European cities and fears of falling resale values remain an overhang, curbing demand for diesel cars. Based on the bearish positioning in the futures market, a lot of this appears to be priced in.
We see the platinum market fairly balanced and maintain a neutral view. In contrast to platinum, palladium is mainly used in gasoline-fuelled cars, giving it a much broader exposure to global car markets. According to data from the United States, Europe and Japan, the recent slowdown in sales continued also in May. Growth in the United States was negative each month this year but sales remain close to record levels while growth in Europe is slowing and Japan is surprising to the upside. Despite this weaker demand backdrop, palladium prices rallied towards $850 per ounce last week.
We see technical rather than fundamental factors behind this rally, supporting bullish sentiment in the futures market. We stick to our negative view and short-position, expecting prices to realign with the weaker demand backdrop over the coming months.
The diesel emission scandal remains an overhang for platinum, weighing on market sentiment and prices. A lot of bad news appears to be priced in, however. Meanwhile, we see technical rather than fundamental factors behind the recent palladium rally. Given the ongoing slowdown in global car sales, we stick to our short-position.