Market fundamentals remain sound and both the platinum and palladium markets remained in deficit in the 2014 calendar year due to strong demand and reduced primary supply as a result of prolonged strike action at South African producers. Despite this, market sentiment and available metal inventories continued to constrain metal prices through the year and into the first half of the 2015 calendar year.
SUBDUED PGM PRICES
PGM prices have generally remained subdued throughout FY2015. Platinum was down from a high of US$1 520 in early July 2014 to around US$1 080 by financial year end and broke the US$1 000 mark in August 2015, while the other PGMs remained generally flat after an initial peak early in the year. Depressed platinum prices come on the backdrop of a market driven mainly by investor sentiments on stock overhang, rather than by market fundamentals.
International Monetary Fund (IMF) data show continued global economic growth levels of 3.4% in 2014 and an estimated rate of 3.5% for 2015. The main drivers of growth in 2014 were the emerging markets and developing economies, which grew at 4.6%, boosted by China which recorded 7.4%. While the developed countries achieved only 1.8% growth in 2014 (up from 1.4% in 2013) there are signs they will break the 2% growth mark in 2015 and maintain this growth level in 2016. This should be able to keep the global economy above 3.5% in 2016.
These growth figures, however, disguise a growing divergence between economies, in part due to uncertainty as a result of a host of risks, including the varying impacts of currency fluctuations, lower oil prices, geopolitical tensions and financial volatility. Despite its fragility, the global economy is expected to post modest improvement this year. This will be helped in part by the boost to global demand from lower oil prices and policy changes.
In contrast, the decline seen in metal prices – including platinum group metals (PGMs) – may suggest some weakening in demand. However, a closer review shows that PGM prices have been driven more by sentiment on unreported above-ground stocks rather than underlying fundamentals, despite these stocks being drawn down every year without the commensurate reflection in metal pricing. To further complicate the matter, supply from South Africa is expected to be further contained as result of increased input, without taking into account increased labour costs, increased stoppages due to section 54s and community activism as well as power and water constraints.