Asset Strategy, Market Insights

Should I Invest in Platinum? Price Forecast for 2018

Gold Alliance disclaimer

Experts predict that platinum prices will stabilize in 2018. Although platinum correlates with gold, the demand will continue to be negatively affected by the Volkswagen diesel scandal—40% of the annual end-use of the metal comes from autocatalysts, where it’s used to reduce harmful emissions from diesel engines. The price of platinum has dropped 40% in price since 2014 when the diesel scandal emerged.

In addition, platinum has a poor outlook compared to palladium, which has increased in price by around 30%, setting record highs. Palladium is mainly used in catalysts for gasoline engines.

Palladium Wholesalers struggle to meet demand

“The stark contrast between palladium’s strong fundamentals and platinum’s lackluster ones continued last year and into 2018, [and] such a divergent trend [has] fueled a marked contrast between investor sentiment,”

says the new Platinum & Palladium Focus 2018 from specialist analysts Metals Focus. The report was recently launched in London, UK, as part of the annual Platinum Week industry meetings and events.

Stockpiles of palladium have been shrinking for the past seven years in a row. 2017 ended with 16 months’ fabrication demand available, compared to 25 months at the start of the decade. Meanwhile, platinum stockpiles have barely changed since 2013, at around 13 months of demand.

Metals Focus predicts that platinum production will drop 1% in 2018, which would be the third annual drop, and land it 7% below 2011’s peak at 188 tons. However, at 247 tons total supply is forecast to be 1% higher than in 2017 due to the recycling of autocatalysts (40 tons), jewelry holding (17 tons), and e-scrap (2 tons). Industry-use, investment, and jewelry demand in 2017 came in at 249 tons.

“The platinum market was effectively balanced last year,” says Metals Focus, who predicts that supply will exceed demand by just 1.2 tons, which is “broadly unchanged” from 2017.

Will platinum demand drop?

Refining and technology firm Johnson Matthey, however, forecasts that the 2018 surplus will be close to eight times higher. Global demand for platinum autocatalysts, they say, will drop 3% because the amount used in each catalyst will drop with the shift to selective catalytic reduction (SCR), a technology that reduces emissions of poisonous nitrogen oxide.

According to bullion market-makers ICBC Standard Bank, “under the current direction of technological travel, [platinum-bearing] Lean NOx Traps look increasingly unlikely to be the solution of choice for NOx reduction. This removes the potential for a significant demand kicker on account of increased loadings.”

In addition, the falling European demand for diesel cars will “outweigh” 2018’s growth in heavy-truck demand in the US and China, says ICBC analyst Marcus Garvey.

Platinum prices may still increase

“But, crucially, mined supply is forecast to decline by 6%, with the potential for more significant reductions in South African production [where] more dramatic restructuring is [also] possible” from the potential sale of the third-largest producer Lonmin to Sibanye-Stillwater and from a review of projects by the second-largest miner, Impala.

Despite what Metals Focus calls “headwinds,” they expect platinum to average $980 per ounce in 2018, which is a 3.3% increase from 2017.