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Looking to the Futures

Are Platinum Prices Key to Stemming Palladium Supply Deficit?

Fundamentals:

The historic bull market run for Palladium continues unabated to start the New Year, with the lead month March futures up over 27% so far this month.

Rising demand for Palladium, and it cousin in the Platinum Metals Group (PMG)—Rhodium, have fueled the historic price rally in these key components in catalytic converters used in gasoline powered vehicles. 

While one would think that sharply higher prices for Palladium and Rhodium would encourage mining companies to increase production, there are some significant economic and political issues that have kept supply increases in check.

First, Palladium and Rhodium production is a byproduct of the mining of Platinum and Nickel. So the biggest incentive for miners to increase production would be if Platinum and Nickel prices moved higher.

Unfortunately, the Platinum market is currently well supplied along with Platinum prices trading at a steep discount to Palladium and even Gold, Platinum miners have little incentive to increase Platinum production and further depress prices in order to make much smaller profits in the byproducts that are in strong demand.

The market for Nickel, while somewhat better than that for Platinum, is still facing headwinds that is keeping prices well below recent highs. 

South Africa, along with Russia are leading global producers of Palladium and Rhodium.

Ongoing issues with power outages affecting South African mining operations has contributed to sporadic supply disruptions, especially for Rhodium, where 80% of mined supplies originate.

Metals traders will be keenly focusing on China’s economic growth forecasts as China’s automobile production now accounts for the largest usage of Palladium and Rhodium.

So any major shifts in demand from China can have an outside influence on prices for these important industrial commodities.

    

Technicals:

Looking at the daily chart for March 2020 Palladium Futures (PAH20), we note that prices have moved parabolic once chart resistance at 1975.00 failed to stem the bullish momentum.

We have finally started to see some selling pressure emerge once the market tested and failed to hold above the 2400.00 price level.

Short-term traders should keep an eye on the 10-day moving average (white) as a near-term support area as prices have not traded below this short-term indicator since late December.

Longer-term trend traders will note how the 50-day moving average (yellow) has resisted sell-off attempts multiple times since November and could act as a major support level once a significant market correction occurs.

The 14-day RSI had moved to extreme overbought reading last week, peaking just above a 90 reading just prior to the move above 2400.00.

Chart resistance is found at the contract high of 2427.00 made on January 23.

Support is seen near 2200.00 which was tested twice last week and is also near the 10-day moving average.

 

Looking at the daily chart for April 2020 Platinum Futures (PLJ20), we notice what could be the formation of a “bull flag” chart formation as prices have retreated moderately following the relatively quick price rally from 970.00 to the recent high of 1046.70.

We also note how the 10-day moving average (white) has supported prices the past several trading sessions.

The 14-day RSI just briefly moved into overbought territory above 70 but has only shown a minor pullback and is still reading a rather strong 60.61 as of this writing.

Chart support is seen at the January 3 highs of 1001.40, with resistance seen at the January 16 high of 1046.70.

Contract Specs:

March 2020 Palladium Futures (PAH20)

 

April 2020 Platinum Futures (PLJ20)

Trading Calendar:

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