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(Kitco News ) - Platinum group metals suffered along with gold and other commodities during the last week, but some analysts described the declines as overdone.

“The fundamentals for platinum and palladium still suggest a case where you have stable to higher prices,” said KC Chang, senior economist who tracks PGMs for the consultancy IHS.

Some analysts said the outlook for palladium may be most favorable due to the combination of an improving auto market in the U.S. and China coupled with supply issues. Others are also upbeat about platinum, although one said it could languish for a while.

Spot platinum this week fell as far as $1,378 an ounce, its lowest level since December 2011. The market edged just below the levels where it was in August before it had surged on deadly violence and production disruptions at mines in South Africa, where some three-quarters of the world’s platinum supply originates. Palladium bottomed this week at $649.40, its lowest level since mid-November.

Both were on the defensive again Wednesday, although holding above the prior day’s lows. As of 1:47 p.m. EDT, spot platinum was down $10.75 to $1,429.25 an ounce, while palladium was $7.20 softer at $663.30.

Both metals came under pressure in recent days as gold suffered its biggest two-day loss ever on Friday and Monday. “It was guilt by association,” said Philip Petersson, commodity strategist with SEB Commodity Research, of the sympathy selling in PGMs. Other industrial metals like copper also tumbled.

“The real issue is we’ve had this change in sentiment away from instruments that would hedge against inflation,” said Daniel Brebner, head of metals research at Deutsche Bank. Many investors are rotating away from commodities and toward other investments such as equities.

Fundamentally, Brebner said, another negative influence for PGMs has been a sluggish European auto market. The main industrial use for PGMs is catalytic converters. A report Wednesday showed auto sales across Europe fell 10.3% year-on-year in March, the 18th straight decline.

Meanwhile, recent PGM selling was likely intensified by the huge net-long positions that had been built in the U.S. futures market. “I suspect there was some liquidation of those long positions over the last week or so,” Brebner said.

The most recent data from the Commodity Futures Trading Commission showed that money managers in the disaggregated report were net long in platinum futures and options by 22,053 contracts as of April 9, while they were net long in palladium by 21,158. In the case of palladium, this was roughly double the net length from late November.

Still, Petersson said, the PGMs fared better than gold during the slide on a relative basis. As of the close last Thursday ahead of the gold sell-off, spot gold had a premium over platinum of around $32 an ounce. As of Wednesday afternoon, platinum had gained the upper hand with a premium of roughly $48.

Sell-Off Described As ‘Overdone;’ Supply Issues Remain Key Focus

“I think it (sell-off) is overdone for both palladium and platinum,” Petersson said. Still, he said, with sentiment weak lately for commodities overall, he advised using stop-loss orders for protection against further losses.

Much of the focus for the two metals is ongoing supply issues in the two key producing nations of South Africa and Russia, Chang said.

Petersson listed a “positive” view for both platinum and palladium. Brebner described the outlook for palladium as “quite promising” but suggested platinum could languish for a while yet. Deutsche Bank is in the process of revising its forecasts after the recent sell-offs. Previously, it was looking for full-year averages of $1,658 in platinum and $760 in palladium. Chang said he looks for platinum to average around $1,550 this year. He suggested palladium will hold around $650 and rally back over $700.

Brebner and Petersson both cited an improving auto sector in the world’s two largest car markets of the U.S. and China as beneficial for palladium, in particular. “This definitely makes a good case for a small market with limited supply,” Petersson said. China and the U.S. are largely gasoline-powered auto markets, which can use less-expensive palladium, while Europe’s still-weak auto market has more diesel-powered vehicles that require platinum.

Meanwhile, a number of analysts have cited ideas that Russian state stockpiles of palladium have been drawn down sharply. “Therefore, they are not likely to result in additional metal if and when it is required, which means we’re expecting to see the palladium market in deficit this year, next year and the year after on the order of about a million ounces,” Brebner said.

“There is an element of scarcity in the palladium market, which makes it fairly attractive,” Brebner said. “Certainly, there is some negative momentum in the market currently. But I think around the $650-ish level, the market looks like an attractive value.”

Meanwhile, analysts said there is potential for supply of platinum group metals to remain constrained in South Africa. Over the last year, there have been a number of strikes disrupting output, and there is always potential for more.

Further, certain infrastructure problems remain. “The one thing that should be re-highlighted is electricity remains an issue for South Africa as a country as a whole,” Chang said. In fact, platinum hit its all-time highs back in 2008 when the market was already rising and got an additional boost when PGM output was dented when South Africa had to ration electricity, necessary for mining far underground.