HSBC Remains Bullish On Platinum, With Small Caveat

Author: Paul Ploumis15 Jul 2014 Last updated at 05:47:20 GMT

 

(Kitco News) - HSBC remains bullish on platinum and forecasts the average 2014 price to rise to $1,505 an ounce, the bank said on Monday.

 

However, HSBC says this price target is 6% lower than their previous forecast, saying while “the drivers have not changed, but the start of the rally was later than we had expected.”

 

Their previous 2014 average price forecast was $1,595. For 2015, HSBC raised its average price forecast to $1,850 from $1,700 and their 2016 average price forecast by $100 to $1,925. Their long-term price forecast remains unchanged at $1,800.

 

They leave their 2014, 2015 and 2016 palladium price forecasts unchanged at $825 an ounce, $900 and $925, respectively. Their long-term forecast was reduced by $80 to $900.

 

HSBC said there are three factors supporting their bullish view on platinum. One, the impact on platinum’s supply/demand balances because of the South African strikes meant a little more than 60% of South Africa’s platinum production was idled for most of the first half of the year. The amount equals about 45% of global output, they added.

 

“The formal end of the strike does not mean production will revert to pre-strike levels anytime soon,” they said.

 

Two, investment demand from both short-term and long-term traders has resumed and three, global auto and industrial demand remains robust.

“Taken together, these factors will widen the expected demand/supply deficit for platinum by 75% more than we had originally expected, and this will support prices,” they said.

 

HSBC said their supply/demand model suggests the platinum market will have a supply deficit of 1.603 million ounces in 2014 and 943,000 ounces in 2015, on top of the supply deficits from 2012 and 2013, meaning the market will likely experience four consecutive years of deficits. “This should be sufficient to boost prices,” they said.

 

The reason why they lowered their average 2014 price stems from the modest range the metal traded in for much of the year, as platinum’s strongest gains came after the strike settlement.

 

“An explanation for platinum’s only modest reaction to the strikes may be that above-ground stocks – for which there are no verifiable hard data – were larger than was generally believed and sufficient to finance the shortfall in production and the broader deficit without exerting immediate upwards pressure on prices. Since the end of the strike, platinum has rallied more convincingly in what we believe is a delayed reaction to the impact of the industrial action. We expect this trend will continue for the rest of 2014 and into 2015,” they said.

 

HSBC is also bullish on palladium prices as global supply is also constrained. “Auto demand, notably from China and the U.S., is strong. Russian stockpiles, which for years plugged a production/consumption deficit, appear to be depleted,” they said.

 

The bank said they expect primary palladium supply in 2014 likely will be the lowest this century. “We anticipate that investor recognition of tightening supply/demand balances will elicit a continued positive response from investors…. According to our supply/demand model, palladium’s production/consumption deficit will increase materially to 1.747moz this year from (about) 371,000oz in 2013,” they said, adding that 2015’s deficit will be closer to 987,000 ounces.