Platinum and palladium will be the best performing precious metals next year as record global car sales will keep them in short supply for a third year, according to the most-accurate forecasters.
The metals, used in catalytic converters, will be in a shortage for the longest stretch since 2005 for platinum and 2000 for palladium, Barclays Plc and Johnson Matthey Plc data show. Platinum will gain 13% to average $1,635 an ounce by the fourth quarter of 2014, according to the mean of eight estimates by the most-accurate analysts tracked by Bloomberg in the past two years. Palladium will gain 10% to average $823 an ounce, the most for a quarter since 2001.
While gold (COMEX:GCZ13) and silver (COMEX:SIZ13) have slumped 20% or more because of diminishing faith in them as a store of value, investors are bullish on platinum and palladium. Growth in car sales is projected to accelerate to 4.8% in 2014 from 2.7% this year, according to LMC Automotive Ltd., at a time when metal stockpiles are contracting as mining companies fail to keep pace with demand.
“Platinum and palladium markets show the tightest supply and demand among precious metals and probably will throughout next year as well,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt and the most-accurate palladium forecaster tracked by Bloomberg over the past two years. “Industrial demand should stay high.”
Palladium rose 6% to $746.10 in London this year as platinum fell 6.1% to $1,445.60. Gold dropped 20% and silver 25%. The Standard & Poor’s GSCI gauge of 24 commodities declined 3.4% and the MSCI All-Country World Index of equities advanced 17%. The Bloomberg U.S. Treasury Bond Index lost 1.8%.
Platinum will average $1,500 this quarter and palladium $750, according to the Bloomberg News survey. The most-accurate list includes the top five forecasters of precious metals, and the remaining three are made up of the best analysts for gold, silver, platinum and palladium individually that provide estimates for platinum-group metals.
Holdings in exchange-traded products backed by platinum reached a record 73.3 metric tons valued at $3.4 billion on Oct. 18, according to data compiled by Bloomberg. Investment in the funds rose 61% since the start of the year, compared with a 28% slump in gold held in similar products. The amount of metal bought through palladium ETPs increased 16% to 67.7 tons valued at $1.63 billion.
Industrial applications account for about 60% of platinum consumption and 91% for palladium, according to London-based Johnson Matthey, which makes about one in three of the world’s catalytic converters. That contrasts with about 10% for gold, data from the London-based World Gold Council show.
Autocatalysts are the biggest source of demand for platinum group metals. The canisters, which have honeycomb-like surfaces that convert emissions into less harmful substances, are fitted to more than 90% of new passenger cars, Johnson Matthey says. Sales of cars and light commercial vehicles will reach a record 83.2 million units this year and 87.2 million in 2014, says LMC Automotive, a research company in Oxford, England.
The world economy may be the biggest threat to the gain in platinum and palladium prices. The International Monetary Fund reduced its global growth forecast for next year on Oct. 8 and now predicts 3.6% from 3.8%. The 17-nation euro area contracted for six consecutive quarters and probably did so again in the past three months, according to the mean of 29 economist estimates. The region accounts for 25% of platinum usage and 21% of palladium demand.