Summary
Platinum and Palladium prices dropped 26% and 30% in 2015 and are ready for a rebound.
The physical deficit is expected to widen for both metals in 2016.
Retail investment and safe haven demand is increasing.
Platinum has massively underperformed gold.
Platinum (PPLT) and Palladium (PALL) dropped 26% and 30% in 2015 amid a year of poor returns for commodities. Year-to-date, these metals haven’t yet recovered much from these losses: Platinum is up 9% for the year and Palladium is down by 2%.
After first evaluating supply and demand trends, I will write about the reasons why I think Platinum and Palladium are ready for a rally.
One reason for the poor performance that has to be mentioned is the uncertainty about diesel vehicles emerging in the Volkswagen (OTCPK:VLKAY) scandal about emissions. Autocatalysts for diesel vehicles account for 25% of platinum demand and 12% of palladium demand.
Prices were also influenced a lot by investor selling. ETF positions for platinum were reduced by 260 thousand oz and for palladium by 730 thousand oz.
Supply
Total supply increased by 18% in 2015. Mine production in South Africa, the biggest contributor, increased by 40% and reached its highest level since 2011. This surge was supported by currency depreciation in South Africa and thereby lower dollar-denominated input costs. The growth of supply was one reason for the poor performance of platinum.
