Since last month’s lows, platinum and palladium have rebounded sharply. Platinum is up around 7.5 percent, mainly benefitting from the recent recovery of the South African rand versus the US dollar, which lifted dollar-denominated production costs at South Africa’s platinum mines. We see this as a return from oversold levels but do not believe there is a fundamental change in the market balance.
Resilient mine production keeps the market well supplied while demand continues to struggle due to the diesel emission scandal. Despite signs that the German government is now supporting the retrofitting of older diesel cars, this is unlikely to change in our view. We remain neutral and confirm our three-month price target of $850 per ounce. For palladium, which is up around 25 percent from the lows of last month, there is even evidence of a weakening fundamental backdrop.
Thus far this month, weekly Chinese car sales have fallen at a double-digit rate, as reported by the China Passenger Car Association. Yet, sentiment in the palladium market improved as most of the bears closed their calls on falling prices while some of the bulls went bargain hunting.
Bullishness prevails due to the narrative of a structural undersupply. While we share the view of a supply-constrained market, we believe this is well reflected in prices. That said, bargain hunting could continue and momentum-driven buying could set in, skewing short-term price risks to the upside.
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