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Paragon Commentary

Futures File: Platinum & Soybeans Drop

Jun 22, 2018

Platinum Market Tarnished

Metals markets fell this week as global fears continued about trade disputes, economic slowdowns, and rising interest rates, all of which could hurt demand, but the platinum market was especially hard-hit, with prices tumbling to a two-year low near $850 per ounce.

Historically, platinum has been valued higher than gold, but now is $400 cheaper than gold, meaning that platinum jewelry can likely be bought at a significant discount by discerning shoppers.

Almost 40% of platinum’s demand comes from the automotive industry where it is used in catalytic convertors, especially in diesel vehicles. However, demand for diesel vehicles has collapsed worldwide following the Volkswagen emission scandal of 2015, where it was revealed that many diesel vehicles polluted far more than advertised.

Gasoline-powered vehicles usually use a chemically-similar, albeit inferior, metal palladium instead of platinum, as palladium was historically far cheaper than platinum, anywhere from half to one-fifth the cost. Now, as platinum demand has collapsed, palladium is worth $100 more than platinum, setting up a market peculiarity.

Longer term, cheap prices will likely cause industrial users to use more platinum, but the market is stuck in a malaise for now, possibly creating on opportunity for patient investors.


Soy Slides to New Low

Soybean prices collapsed to a nine-year low this week after another round of escalated trade disputes between the United States and China. Beans fell to $8.41 per bushel on Tuesday after President Trump threatened to target another $400 billion in Chinese imports with tariffs, up from the initial $50 billion targeted, prompting a response from the Chinese that they would “strike back hard.”

Many in the agricultural community had hoped that the trade dispute would calm down, but the first round of U.S. tariffs begins in on July 6, leaving little time for a deal to be cut. China buys one-third of all U.S. soybeans, and their proposed counter-tariffs will hit soybeans directly, likely diminishing Chinese demand for U.S. soybeans.

After the early week washout, prices recovered significantly but were still trading under $9.00 per bushel on Friday, a price that could be devastating for farmers if it doesn’t recover.

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