Platinum, palladium to outshine gold and other key metals: BMO Capital Markets

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By James Campbell

PLATINUM and palladium will outperform gold, silver and base metals next year, BMO Capital Markets said in a report.

“Robust demand growth coming from the auto catalyst market and other industrial applications, and a lacklustre and uncertain supply outlook, are projected to dramatically tighten the platinum group metals market into 2012,” BMO said.

The report also said platinum group metals would benefit from their gold-like qualities, as investors continue to buy physical precious metals to protect against systemic risks associated with sovereign debt defaults, future inflation, and the US dollar.

KEY COMMODITY PRICES: gold, silver, base metals, platinum, palladium, oil and wheat

The bank forecast the overall physical market for both metals to enter a deficit as early as next year, mainly due to production disappointments and labour issues in South Africa, and said upside risk is significant.

“Recycled material and existing stocks,” especially for palladium, “will be called upon to balance the market, making PGMs prices very susceptible to investor sentiment and volatility.”

BMO forecast platinum to average $US1636 a troy ounce this year and $US1800/oz next year, and palladium to average $US480/oz and $US525/oz.

However, it said, if supply does materialise as expected then there is a “distinct possibility” that platinum could peak at $US2400/oz and palladium could hit $US700/oz.

By mid-afternoon (AEST), spot platinum was trading at $US1554/oz, down $US17 since Friday’s New York close, while palladium was $US487/oz, down $US2.

It didn’t give a price forecast for base metals or gold.

“Recent examples of deadly accidents and shut downs are indicative of significant production challenges and vulnerabilities faced by miners in South Africa, the world’s largest source of PGMs.”

BMO said that inadequate investment in South Africa’s infrastructure, frequent labour disputes in its mining and utility sectors, severe technical and safety challenges surrounding precious metals mining and a possibility of unfavourable changes in mining legislation are further causes for concern that supply won’t grow as expected.

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