This morning, AngloPlats, Impala and Lonmin said it was suspending mediation with
AMCU via the CCMA because the parties were too far apart. There are growing concerns
in the platinum and palladium market about supply and, by implication, price. We have
been asked many times this week why prices are not much higher already, and what the
next move will be.
Firstly, our view remains that there is enough metal around; the market will not run out of
either platinum or palladium soon. However, with the main producers out of production
and perhaps soon out of metal, the market is increasingly wondering from where supply
will come. It is now a question of price, i.e. at what price the holders of above-ground
inventory of platinum and palladium would be willing to part with inventory.
Secondly, there is some event risk involved, which is why prices are not higher already.
Event risk now seems to have been pushed out, after the announcement by the miners
today. From a price perspective, this is bullish. For holders of above-ground metal, the
question is: do we wait and get a higher price, but forfeit the opportunity to get a high
price should the strikes suddenly end? Or do we sell some metal on every decent rally in
order to mitigate event risk?
As a base case, we expect the latter. Such selective selling might cap upside on decent
rallies. Therefore, any price trajectory is likely to be choppy.
That said, we know from CFTC data that the futures market has been neutral to
underweight platinum and palladium up until last week (as measured by net speculative
length as a percentage of open interest on NYMEX), possibly because event risk has been
high. However, in our view there was, and still is, room for new longs to enter. With event
risk now having shifted further into the future, the probability of new speculative longs
entering the market has increased. The price at which platinum and palladium will come
to the market has moved higher today, and we believe this is likely to continue to move
slowly higher as until the bargaining parties are talking again.
Once the strikes end, we believe that the market-clearing price will move down. From a
tactical perspective, we have been looking for platinum rallies to fade on approach of
$1,500 since July last year. At the same time, we saw little value in being short below
$1,400. We now look for upside to extend further, targeting an initial spread of $200
relative to gold, i.e. with the gold price around $1,340, we look for platinum to rally
towards $1,540. But, ultimately, the rally could move towards $1,600.
We have preferred to approach palladium from the long side, seeing value on approach of
$690 - $670, with little value in adding new longs above $750. Although we believe
that supply fears from Russia are overdone, we expect palladium to find support on
approach of $750 as long as the strikes in the SA platinum sector continue.
We maintain that both the platinum and palladium price will sacrifice their current gains
once the strikes inevitably end.

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