Platinum and Palladium prices have fallen recently, undoing earlier gains. Last week, Platinum was close to its highest point in 11 years. This price fluctuation may signal the end of its recent rally. A Russian producer predicts that the Platinum market will stabilize this year and next, not accounting for investment demand. The automotive sector’s demand is expected to decrease, and while jewellery and industrial usage are on the rise, they won’t be enough to balance this drop. When considering investment demand, a short supply of 200,000 ounces is expected this year, increasing to 300,000 ounces next year. Metals Focus had previously forecast a much larger supply shortage by 2025. For Palladium, a balanced market is also expected over the same period. Similar declines in automotive demand and weak investment demand contribute to this outlook. The rise in Platinum prices since May is linked to increased imports from China and the US. Chinese jewellers are favoring Platinum over Gold, while US buyers are concerned about tariffs on Platinum group metals. Platinum prices have retreated after peaking at levels not seen in over a decade. This recent decrease follows a rapid price rise and suggests a potential loss of momentum, especially with new insights from key suppliers. A leading Russian company anticipates a balanced market through next year if investment flows remain steady. They highlight the drop in automotive demand, primarily due to reduced internal combustion engine production, as the main constraint. Although there is some growth in jewellery and industrial demand, it is insufficient to cover the shortfall. However, including investment demand changes the outlook. For 2024, a deficit of 200,000 ounces is predicted, widening to 300,000 ounces in 2025. This projected shortfall is smaller than earlier estimates from Metals Focus, indicating a less intense supply concern, but it does not mean the issues have vanished. This revised outlook undermines previous thoughts of tight supply pushing prices higher and raises questions about the sustainability of the prior price rally. As for Palladium, estimates also indicate a balanced market for the next two years, hindered by low vehicle production and decreased use of catalytic converters. The investment side hasn’t stepped in to help. Without new speculative or institutional buying, the market finds it challenging to maintain consistent upward momentum. Both metals previously saw price spikes due to speculation around strong imports to the US and China. In China, imports seem driven more by changes in buying habits than industrial growth. Chinese jewellers are now choosing Platinum over Gold, which is getting expensive per gram. In the US, buyers are acting amidst ongoing trade worries, possibly trying to build inventory ahead of potential tariffs on metals from certain regions. Given this situation, we should see the recent price swings as part of a broader change in market sentiment. These price movements, supported momentarily by increased physical buying, lack strong consumer demand or investment confidence. Instead, they may reflect opportunistic or precautionary purchases by participants wanting to stay ahead of possible policy changes. For traders in the derivatives market, it’s important to remember that forward curves and implied volatilities have sharply reacted to these news pieces. With supply appearing less constrained than previous expectations, recent long positions in futures and options may be challenged unless new information emerges. Current interest and skew levels suggest that many are anticipating renewed strength. However, with recent price weakness, the downside risk has increased unless buyers return quickly. Hedging activity, particularly among industrial users, may also need adjustment. The previous urgency to secure forward pricing could lessen, offering more flexibility in rolling strategies. This might also enable the use of cost-effective options, as implied volatilities remain high compared to recent price movements. As we keep a close eye on Platinum and Palladium markets, it’s essential to evaluate the reasons behind price movements—not just the numbers but the influences driving demand, trade dynamics, or geopolitical concerns. The spike observed in May seemed to be due to precautionary restocking and substitution of metals, rather than a surge in speculative enthusiasm. Remember, when market positioning is widely one-sided while the physical market behaves differently, adjustments can happen quickly and sharply.

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