Palladium bull run lifts platinum
Analysts warn rally since 2016 may soon end due to slow global economic growth
The rally in the price of precious metals, which has led to the JSE’s platinum index’s highest level in two decades, may be soon end as fears mount over a global recession.
The rally in the price of precious metals, which has led to the JSE’s platinum index’s highest level in two decades, may be short-lived as fears mount over a global recession.
The spike has been supported by the rise in the prices of palladium and rhodium, which are used in the making of catalytic converters for vehicles. Palladium reached a record high this week, bolstered by concerns of supply shortages and fears that Russia’s stockpile may run out.
Demand for the metal, which is up almost 40% in 2019, has helped push the JSE’s platinum mining index up 134% in 2019, to its highest level in 20 years.
Mergence Corporate Solutions mining director Peter Major said palladium and rhodium which contribute “nearly 62%” of revenue for platinum miners have lifted the price of the platinum group metals (PGMs) basket of platinum, rhodium, palladium, iridium, osmium and ruthenium.
“The platinum mines were bankrupt just a few years ago, but since the palladium price has gone through the roof, they are all making more money and hence the share prices have gone up,” said FNB Wealth and Investments’ Wayne McCurrie.
Impala Platinum has gained a record 184% in 2019, Northam has jumped 130%, Anglo American Platinum (Amplats) is up 102% and Royal Bafokeng 59.7%.
Analysts say the boost in the index has benefited the JSE, which is up about 6% in 2019.
However, the rally in the price of palladium which has gone up by more than $1,000 since 2016 may be cut short as fears mount over slowing global economic growth, analysts say.
“The biggest single risk is the global economic slowdown. If the world goes into a recession, prices will fall, as there will physically be less demand for the metal,” McCurrie said.
“I think we will see their prices come off before the end of the year ... if investors really believe rhodium and palladium are going to keep running they would not have started selling shares yet. There already seems to be profit-taking on Amplats and Impala,” Major said.
“These sellers might be wrong but they have started selling, showing some nervousness among investors.”
The gold mining index has gained 78% in 2019, bolstered by the safe-haven status of spot gold as uncertainty in the global environment and, more specifically, the trade war between the US and China, pushed investors away from riskier assets.
Spot gold which has reached a six-year high in 2019
has benefited from market expectations that the US Federal Reserve many enter a monetary policy-easing cycle after some weak economic data.
“The likelihood of a rate cut has kept gold around $1,500 for three months now and the markets think there is a chance for at least another US interest-rate cut this year, thereby sustaining this level,” Major said.
The price of gold has also been aided by the prolonged trade war, with analysts saying it could continue to rise should the conflict persist.
“In theory, if the trade war escalates the gold price should go up, while palladium and platinum might take a knock,” McCurrie said.
The market capitalisation for the platinum mining index was at R429bn and the gold mining index at R293bn on Thursday. The entire market of the JSE was at R14.91-trillion on Thursday.
THE PLATINUM MINES WERE BANKRUPT A FEW YEARS AGO, BUT SINCE PALLADIUM HAS GONE THROUGH THE ROOF, THEY ARE ALL MAKING MONEY
40% The rise in demand for palladium so far in 2019 on fears of supply shortages
134% The rise in the platinum mining index on the JSE so far in 2019