Thesis
Welcome to Orchid's Platinum Weekly report, in which we discuss platinum prices through the lenses of the GraniteShares Platinum Trust (NYSEARCA:PLTM).
PLTM crashed to its lowest since its inception date in January 2018 at $5.76 per share on March 19, as the NYMEX front-month platinum futures tumbled to its lowest since October 2002 at $562 per oz on March 16.
Although some market observers have been induced to attribute the violent sell-off in platinum prices so far this month (-23%) to platinum's weak fundamental backdrop, we think that the fundamentals were not the main driver of the PLTM sell-off.
If negative fundamental dynamics were behind the sell-off in platinum prices, we would have expected palladium to outperform considering that its fundamental backdrop is relatively much tighter. On the contrary, the sell-off in palladium prices has been relatively deeper so far in March, with the NYMEX front-month palladium futures down 32% in the month to March 23.
We think that the sell-off in platinum prices has been influenced by the crash in palladium prices. As we noted in a previous report, the correlation of platinum and palladium has been extremely high in recent weeks (and significantly higher than that of platinum and gold).
We initially expected platinum prices to perform well this month due to positive spillovers from the tight palladium market. But the exact opposite happened. The violent paralysis of the global economy has substantially weakened the automotive sector, which represents 80% of global palladium demand. The weaker demand outlook for palladium and the panic across the global financial markets spooked palladium traders, which triggered a nasty sell-off. In turn, this has put tremendous pressure on platinum prices. The fragile micro backdrop of the platinum market despite the recent supply disruptions in South Africa reinforced the decline in platinum prices.
