Platinum Demand Ripe for Bounceback

Palladium is hot, and platinum—not so much, speaking relatively. While Middle East unrest and European sovereign debt concerns push oil prices beyond $100 a barrel and gold prices are at all-time highs, other precious metals may be overlooked—especially those with primarily industrial uses. But the rolling Chinese auto market is doing its part to keep PGMs in the spotlight.

Platinum spot returns are up 18% over 12 months, which pale in comparison with palladium (86%). According to an ETF Securities report based on statistics compiled from Bloomberg, outperformance of platinum prices in early 2009 saw the platinum to palladium ratio reach historic highs. Palladium prices caught up by the latter part of 2009 and continued to outperform in 2010, causing the platinum-palladium ratio to fall to its lowest level in nine years by February 2011.

This "pretty much reflects a slightly larger supply surplus in the platinum market that evolved in 2009 and 2010," said Daniel Wills of ETF Securities. The surplus did shrink in 2010, however. Overall, the disparity in the platinum-palladium ratio, marked by the swift run-up in palladium prices, bodes well for much better performing platinum prices in 2011.

"Palladium's love affair will continue, but platinum will attract more interest than last year," said Edel Tully, an analyst at UBS, citing a stronger rand, rising mine inflation and supply risks in a recent Kitco report.

Investment demand for platinum is slowly but surely growing over the past three years or so—averaging 7% of total demand from 2008-2010, against only 1% from 2005-2007. But total holdings—considering both net inflows and outflows of the white metals over the past two months—have remained rather stagnant.