After having stagnated at $1,320 to $1,370 for some time, platinum is now trading above $1,400, palladium is above $360, and rhodium is also rising. Despite speculative interest for metals still being very high, we see more upside for PGM. The latest CFTC data shows that in the futures market, the net speculative length as a percentage of open interest has reached 62% for platinum and 56% for palladium. Both are high, and increases the risk of holding long positions in these metals.
However, we see still see good support for PGM prices. Our cost-curve estimates for South African PGM producers show that using the YTD average PGM basket price, 10% of production on a cash-cost basis remains unprofitable. On a total cost basis, even more production remains at risk.
Cost pressures face the persistently strong rand which has been strengthening as investors want greater EM and investors commodity exposure, especially to gold. We expect the strong rand to remain intact, which implies that dollar prices for platinum must rise further to offset the rand.
We see increased demand for PGM. On a relative basis, we favour rhodium and palladium more than platinum. Rhodium has lagged the price recovery of platinum and palladium. For palladium, the improvement in industrial demand for is observed in the discounts for sponge.
At the height of the financial crisis, when the PGM were trading at their weakest level, sponge was trading at a discount of approximately $7 to Zurich. Sponge is now trading almost flat to ingots in Zurich. While we prefer palladium and rhodium to platinum, we still see more upside for platinum. Should the ZAR continue to fluctuate around $7.50, our targets are $1,500 for platinum, $380 for palladium and $2800 for rhodium
Courtesy: Commodities Research, Standard Bank
