UBS Reports on Platinum's Price Stability Amid Supply Challenges

Understanding the Current State of Platinum Prices

Platinum, a precious metal highly valued in various industries, has surprisingly remained within a limited price range. UBS analysts attribute this stability to an undersupplied market that has not prompted the price hikes many anticipated, despite current market shortages.

Historical Price Fluctuations and Recent Trends

In examining the last three years, platinum has traded between $850 and $1,150 per ounce, holding an average close to its present price at approximately $962 per ounce. This pattern is intriguing, particularly given the backdrop of a tight market and increasing demand across various sectors.

The Role of Above-Ground Inventories

UBS highlights that elevated inventories above ground are largely responsible for preventing prices from climbing. According to data from the World Platinum Investment Council, these inventories are projected to reach about 4.034 million ounces by the close of the year. For significant price increases to materialize, UBS believes inventories need to decrease below the 2 million ounce threshold.

Comparisons with Palladium Market Dynamics

There are parallels between the current state of the platinum market and previous trends seen in palladium. Historically, once excess inventories of palladium were depleted, a price surge followed. This situation could potentially repeat itself with platinum, depending on inventory levels in the coming years.

Forecasting Future Supply and Demand

Looking ahead to 2025, the expectation remains that the platinum market will experience supply constraints, even with anticipated recoveries in scrap such as used autocatalysts. The recycling of platinum relies heavily on the lifecycle of vehicles, usually taking around 15 years before they are scrapped and their components reclaimed.

The Impact of Recent Economic Factors

The COVID-19 pandemic disrupted traditional cycles of vehicle production and scrapping, resulting in older cars remaining on the roads longer than expected. This scenario has created an unexpected bottleneck in the secondary supply chain. Additionally, the combination of high inflation and rising interest rates has paradoxically increased the demand for used vehicles over new ones, complicating the recovery of platinum supply.

Future Projections for Secondary Supply

UBS predicts a modest rise in secondary supply as the delays in scrapping older cars eventually resolve themselves. However, prolonged use of these vehicles could restrict recycling output, further tightening the platinum market. This closely watched factor leaves platinum's future supply uncertain.

Price Predictions and Market Performance

Despite all these dynamics, UBS maintains a cautiously optimistic outlook for platinum, projecting a target price of $1,100 per ounce by mid-2025. However, they caution that platinum may lag behind gold prices until there is a noticeable drop in interest rates that encourages more robust industrial activities.

Advice for Investors

For those considering investments in platinum, UBS emphasizes the importance of hedging against potential price declines. Investors should be ready for a period where price recovery is closely tied to the reduction of high above-ground inventories, which have so far stifled substantial increases in price.

Frequently Asked Questions

What has caused the price stability in platinum?

UBS indicates that elevated above-ground inventories are largely keeping platinum prices stable, despite a tight supply situation.

What is the historical price range for platinum?

Over the past three years, platinum has fluctuated between $850 and $1,150 per ounce, averaging around $962/oz.

When might we see a price increase in platinum?

A significant price rise may occur if inventories fall below 2 million ounces, which UBS suggests could happen around 2026.

How does the palladium market influence platinum pricing?

Similar dynamics occurred in the palladium market where prices surged post-excess inventory depletion. This trend could also apply to platinum.

What advice does UBS have for platinum investors?

UBS recommends that investors hedge against potential price declines, as substantial gains in platinum prices may depend on inventory reductions.

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