Monday, 18 February 2013

Speculative rush into PGMs

Platinum Group Metals (PGMs) have one of the best price outlooks amongst all commodities, although it is hardly a feel good story.  The industry has been bought to its knees as poor profitability amongst major producers coupled with crippling strikes driven the market into a a deficit position on paper and prices have moved higher.

The challenge for those wanting more exposure to these metals from here is that speculative futures positioning on NYMEX (the most dominant exchange) has already increased dramatically.  Attitudes towards the PGMs has changed dramatically from mid-2012, with the large short positions first to go and long interest continuing to rise early in the year, particularly for palladium.

For a prospective buyer at this price point, one critical question is that if many punters have already piled into these metals in record numbers, is it a good time to buy now to catch further upside?

The answer to this question really depends on how long you can wait for profits. I think the fundamentals for PGM metals justify higher prices.  But both Platinum and Palladium has been frustrating performers before their recent outperformance.

There is also much about current market dynamics which is relatively opaque. For example, while stocks are likely to be currently drawn down, the level of stocks is not entirely clear.

This is particularly a problem for palladium.   While Russian state stockpiles are reportedly close to depletion, in all likelihood this material has merely been shifted rather than consumed.

So its not clear when fundamental physical buying will given PGMs another leg up beyond the more recent speculative boost.  Given how these metals have failed to take off the last couple of years, I'd tend to think that for those looking for a more immediate payoff may find it elsewhere.







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