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PGM Backdrop Mostly Favorable But Stronger Economic Outlook Needed To Boost Prices

(Kitco News) – While the fundamental backdrop might be favorable, analysts say the platinum group metals might not be able to accelerate to the upside until the global economy improves.Some do in fact look for a tightening supply/demand balance to begin emerging in 2012, helped by an expectation for improving automobile demand.Japanese car production has begun to recover from a spring earthquake and tsunami, and there are signs of life in global auto sales lately, analysts say. These are significant for PGM demand since the metals’ main industrial use is for auto catalysts. There are also worries about future PGM supply growth due to political and cost factors in key producing nations.Still, platinum prices are only modestly higher than where they began the year, while palladium is lower.“What’s keeping it down is the uncertain growth environment globally,” said Bart Melek, vice president and head of commodity strategy at TD Securities.Market participants are worried about the U.S. sliding into another recession, Europe’s sovereign-debt crisis will spiral out of control and Chinese monetary tightening to control inflation could end up curbing demand. With the future economic outlook the main focus, traders have shrugged off other positive PGM news such as improving auto sales in the U.S. and China and supply issues, Melek said.“We like PGMs and think they will outperform longer term (against) gold and pretty much every other metal,” Melek said. “But we need some good positive, economic news. The fundamentals are certainly there. But we’re not getting certainty about the economic outlook.”TDS looks for the global economy to avoid some of the worst-case scenarios and expects PGMs, especially palladium, to be “star performers into 2013.” TDS looks for platinum to average $2,000 and palladium to average $1,000 in 2013.Auto demand has in fact picked up lately, pointed out Erica Rannestad, commodities analyst with CPM Group. But, like Melek, she suggested the market wants to see more solid economic footing before pushing prices higher too aggressively. For the next few months, she suggested platinum could get back above $1,900 an ounce, while palladium is likely to be more sideways with a floor of support around $700 and bargain hunting on any dips below.HSBC recently downgraded its platinum and palladium forecasts for 2011, partly because of the effect of the Japanese earthquake, which the bank says took a “severe toll” on Japanese auto production. The bank now looks for platinum to average $1,825 this year and palladium $785, compared to previous forecasts of $1,850 and $825.“However, auto and industrial demand should improve next year, outstripping the ability of mining output to keep pace,” HSBC said.Consequently, the bank hiked its PGM forecasts for the next two years. It now looks for platinum to average $1,875 and $1,825 in 2012 and 2013, up from previous forecasts of $1,750 and $1,650. Also, HSBC now looks for palladium to average $810 and $825 the next two years, up from the previous $750 and $725.Supply, Demand Factors Supportive For PGMs

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