Edison Exhibits- A bull market for precious metals

Published on 04-03-2020 11:01:09

2019 Performance by metal

Source: Baker Steel Capital Managers. Note: Data at 31 December 2019. Data in US$ terms.

The bull market for precious metals remains intact, with gold and silver prices up by c 19% and 16% in 2019, respectively. Performance in the speciality metals market varied across subsectors in 2019, as some strategic metals experienced supply tightness, while others faced demand weakness and/or destocking.

Although palladium and nickel provided the highest returns in 2019 (53.6% and 31.2% respectively), the market offers limited opportunities to benefit from them. However, the long-term outlook for underperforming speciality metals appears much brighter, with huge potential new demand for speciality metals from the development of new technologies (EVs, batteries and green technologies).

The overall top performing metals during 2019 included palladium (53.6% annual return), which benefited from continued strong fundamentals amid the shift away from diesel cars, and nickel (31.2%), which saw significant price gains in Q3 due to record-low inventories and concerns over restricted supply from Indonesia. As both metals are used in the production of traditional and electric vehicles, the outlook for the next few years remains positive, according to the managers, bearing in mind the potential to substitute platinum for palladium. Platinum appears oversold, but lacks demand drivers.

At the other end of the performance spectrum, vanadium and lithium exhibited weak performance, with the former impaired by niobium substitution and high levels of by-product volumes in China, and weaker than expected demand for the latter amid Chinese EV subsidy cuts. Having said that, expanding EV sales in Europe should drive positive lithium performance in 2020. The development of the EV market remains a core long-term driver for many speciality metals, as its share in annual global light vehicles sales is expected to exceed 10% by 2024, and accelerate to reach 55% by 2039 (source: BloombergNEF data).

Subdued investor sentiment and concerns over economic growth put pressure on the industrial commodities market in 2019, which is struggling to recover from the lows of the past few years. However, the outlook is improving amid low inventories following declines in recent years, indicating tighter supply. Potential brightening of the broader macroeconomic outlook could serve as a near-term catalyst, while longer term the metals stand to benefit substantially from the electrification of transport and the transition towards clean energy.


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