Fundamentals Support Palladium, Platinum ETFs

ETF Trends

Given the production halts weighing on the supply side and strengthening global economy supporting the demand side, strong fundamentals will continue to support palladium and platinum exchange traded funds.

HSBC’s James Steel and his team believe the platinum group metal prices are being bolstered by tighter fundamentals, reports Teresa Rivas for Barron’s.

Specifically, labor strikes in South Africa, one of the largest producers of the metals, has crimped supply. [Platinum ETF Physical Holdings at Record High on S. Africa Strikes]

“A little more than 60% of South Africa’s platinum production – representing c45% of global output – has been idled since late January, due to industrial action against the three largest South African platinum producers,” the analysts wrote in a note. “The strikes are further aggravating already tight production from South Africa and contributing to the market’s production/consumption deficit.”

A recovering global economy and rising auto sales will increase industrial demand for the metals. Palladium and platinum are used in autocatalysts for diminishing toxic gases from automobile emissions.

“We expect good demand from the European auto sector where the more popular diesel-powered engines require heavier platinum loadings, than gasoline engines,” the analysts said.

Meanwhile, the rising auto demand in China and North America will increase use of palladium in gasoline-fired engines.

Additionally, “good jewelry demand in China, despite slower growth, will contribute platinum’s production/consumption deficits,” the HSBC analysts added. “We anticipate further strength in jewelry demand from China as its growing middle class continues to seek out luxury goods.”

The HSBC analysts project platinum prices could average $1,595 per ounce and palladium will average $825 per ounce over 2014. Platinum is currently hovering around $1,448.8 and palladium is $788.6. [Palladium ETFs Remain in Focus on Global Headlines]

So far this year, the ETFS Physical Platinum Shares (PPLT) has gained 5.1% while the ETFS Physical Palladium Shares (PALL) increased 10.2%.

For more information on the precious metals, visit our palladium or platinum category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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