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World Bank does not see platinum rally being sustained

26th April 2016

By: Terence Creamer

Creamer Media Editor

  

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The World Bank does not expect the recent rise in platinum prices to be sustained for the full year, with its latest ‘Commodity Markets Outlook’ report forecasting a 10% year-on-year price decline in 2016.

The report, released on April 26, notes that precious metals prices increased by 6% in the first quarter on stronger investment demand and safe-haven buying. The price of gold rose by 7%, while silver and platinum prices each increased 1%.

Platinum’s 13% surge in February and March is attributed to rising gold prices and a stronger rand, with South Africa producing about 60% of global production.

“However, mine supply is facing headwinds due to sharply lower investment, upcoming labour negotiations, and adverse effects from drought. Demand from the automotive sector remains robust, boosted by low fuel prices and easing credit.”

Overall, the bank forecasts that precious metals prices will decline 2% in 2016, mainly as a result of lower investment demand.

Platinum is expected to lead the decline, falling 10% on surplus supply. The bank is forecasting a 2016 platinum price of $950/oz in nominal US dollar terms, rising to $999/oz in 2017. By 2025, it expects the price of the precious metal to be $1 500/oz in nominal US dollar terms.

The platinum price, which has traded as low as $816/oz in the last year, breached the $1 000/oz level in early April and was above that benchmark level at the time of the release of the World Bank report.

Gold prices, by comparison, are projected to fall by only 1%, reflecting strong investment demand in the first quarter. However, the bank expects the price to decline in future on expectations of a rising dollar and tightening in US monetary policy.

“Downside risks to the forecast include stronger-than-expected monetary tightening and dollar strength. Upside risks include weaker global growth, financial stress in key economies, heightened geopolitical events, and stronger demand from consumers, central banks, and investors.”

Meanwhile, the bank has increased its 2016 price forecast for crude oil to $41/bl, from the $37/bl level forecast in January, but is still expecting all main commodity indexes to decline in 2016, owing to persistently elevated supplies and weak growth prospects in emerging market and developing economies.

It is also forecasting a modest price recovery for most commodities in 2017 as demand strengthens. Crude oil is projected to rise to $50/bl next year as the market moves into balance.

Nevertheless, with oil and metals prices 50% to 70% below their early-2011 peaks, many commodity-exporting countries have come under pressure and the World Bank suggests countries should consider waiting for prices to start rising again before launching new natural resource development initiatives.

The report notes that most commodity price indices rebounded between February and March from their January lows – a move attributed to improved market sentiment and a weakening dollar. Nevertheless, average prices for the first quarter fell compared to the last quarter of 2015, with energy prices down 21% and nonenergy prices lower by 2%.

The upward revision in the outlook for oil prices is premised on an expected supply tightening in the second half of the year, while all energy prices (including oil, natural gas and coal) are expected to fall 19.3% year-on-year, reflecting a more gradual drop than the 24.7% slide forecast in January.

Likewise, metals prices are projected to decline more modestly, at 8%, than the 10.2% anticipated in January, owing to supply reductions.

The largest decline is for nickel, which is expected to fall by 22% due to weak demand and insufficient production cuts. Sizable declines are also expected for iron-ore (down 10%) and copper (down 9%).

“Markets are expected to tighten in the medium term due to reduced investment in supply capacity, rising global demand, and some specific factors, including Indonesia’s ore export ban and closure of large zinc mines due to exhaustion.”

Overall, nonenergy commodities, such as metals and minerals, agriculture, and fertilisers, are predicted to decline 5.1% this year, representing a downward revision from the 3.7% drop forecast in January.

Agricultural prices have been revised marginally lower on signs of adequate harvests in major producers, and prices are forecast to decline 4% from last year.

Edited by Creamer Media Reporter

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