Platinum prices are expected to average $1,460/oz in the second half of the year due to a five-month labor strike in South Africa that will create a supply deficit of at least 1.3 million oz, German precious metals refiner Heraeus said in a report Monday.
The strike, which was finally settled last week, cost Anglo American Platinum, Lonmin and Impala Platinum more than 950,000 oz in lost production, according to Commerzbank analysts.
Moreover, full-scale production is unlikely for at least several months as the mines undergo preliminary maintenance and ramp-up activities, analysts with Commerzbank and other investment banks have said.
"It can be expected that the platinum deficit in 2014 will run up to a minimum of 1.3 million oz," Commerzbank analysts said. "As such, we see platinum well supported in H2 too, especially due to the continuing supply deficit."
But platinum prices are also supported by strong demand from the European and Chinese auto industry, which uses platinum in catalytic converters to reduce greenhouse gases. New vehicle registrations in both markets are up compared with last year.
Investment demand for platinum is rising. The new platinum exchange-traded fund launched in South Africa by ABSA Capital now holds 1.2 million oz, compared with about 900,000 oz at the end of last year.
"All in all we have a positive outlook for platinum for the second half of the year too, which will primarily be supported by the situation in South Africa, industrial demand as well as investment demand," Commerzbank analysts said. "Compared to the first half, we expect the metal to trade in a tighter range between $1,325/oz and $1,575/oz and an average of $1,460/oz."
Commerzbank expects palladium prices to average $850/oz in the second half after trading between $750/oz and $950/oz. In June, palladium touched $862.50/oz, its highest level since February 2011.
"Palladium has primarily been influenced by events in South Africa and Russia, the latter being the largest palladium producer in the world," Commerzbank said. "Due to possible sanctions against Russia on account of the Crimean crisis, the country continues to be considered an uncertain palladium supplier."
An estimated 530,000 oz of palladium production was lost during the five-month labor strike in South Africa. Citing estimates from Thomson Reuters/GFMS, Commerzbank analysts said the 2014 production deficit in palladium was likely to reach 1.3 million oz.
As with platinum, auto sector demand will be a key driver for palladium, especially with the implementation of the Euro VI emissions regulations. Investment demand will also be a key driver, with ABSA Capital's palladium ETF now holding 412,000 oz of palladium, Commerzbank said in its report.
"As it is going to take many months before production in South Africa can get back to normal levels, palladium should continue to have a tailwind behind it in H2 too, which will further be supported by positive industrial demand," analysts said.
