Platinum faces worst year since 2005 as demand nightmare continues

LONDON (Reuters) - Platinum prices will average their lowest in more than a decade this year before a modest recovery in 2019, a Reuters poll showed on Friday, with the metal predicted to maintain its historically unusual discount to palladium.

Platinum, used chiefly in emissions-cutting catalytic converters in vehicles and in jewellery, has tumbled from more than $1,000 an ounce in January to around $800, its lowest since 2008.

It is caught in a speculative sell-off fuelled by a supply surplus, demand concerns due to the threat of a global trade war and a strengthening dollar, which makes metals more expensive for buyers using other currencies.

A Reuters poll of 29 analysts and traders returned a forecast for platinum to average $922 this year, its seventh consecutive annual decline and lowest annual average since 2005.

But next year platinum should snap its losing streak, rising to average $979, respondents said.

A similar Reuters poll conducted three months ago forecast that platinum would average $983 this year and $1,038 in 2019.

“Amid persistently weak fundamentals, recovery potential should be limited for platinum,” said Julius Baer analyst Carsten Menke.

“The diesel scandal remains a drag on demand ... Meanwhile, currency weakness provides a lifeline to the South African platinum industry, cutting dollar-denominated costs and reducing the risk of mine closures,” he said.

Demand for diesel engines, which use more platinum than petrol engines, sagged after Volkswagen VOWG_p.DE was found in 2015 to have cheated in emissions tests.

South Africa produces around 70 percent of global mined platinum and at current prices many of its mines are unprofitable. But the rand, down 17 percent to the dollar since February, has inflated miners’ local currency earnings.

Platinum could bounce back if speculative investors who have built the largest net short position in Nymex platinum for at least two decades decide prices have hit bottom, Standard Chartered analyst Suki Cooper said.

“The extreme positioning suggests scope for short-covering activity if prices stabilize or demand data picks up,” she said.

Poll respondents forecast an average palladium price this year of $1,000 an ounce, up just $3 from last year’s average, and an average in 2019 of $1,016.

Palladium, used mainly in catalytic converters for gasoline engines, jumped 56 percent last year and moved above platinum for the first time since 2002, but has fallen to around $900 from an all-time high of $1,138 in January.

The poll three months ago predicted palladium would average $1,039 in 2018 and $1,040 in 2019.

“We expect a rebound in palladium prices amid a growing market share of gasoline vehicles and healthy demand growth in emerging markets. Fundamentals are tight amid a widening deficit,” Intesa Sanpaolo analyst Daniela Corsini said.

Reporting by Peter Hobson; Editing by Veronica Brown and Louise Heavens