by Commodity Online
Platinum and palladium are two commodities precious metals investors are banking on these days. Prices of these precious metals, popularly known as PGMs, have been on the rise in the last two years. Investors are also piling their money into exchange traded funds (ETFs) in platinum and palladium, says a new research report from Standard Bank - Precious Metals Monthly.
Following is an analysis from Standard Bank on PGMs's performance:
"January saw average platinum and palladium prices for the month both rise by 5% in dollar terms compared to December. The similar percentage increase for each metal, in stark contrast to palladium’s out performance over the previous six months (as shown in the chart below right), masked greater volatility in the palladium price during the past month compared with its sister metal.
The year began with the more volatile palladium realizing a steeper correction than for platinum. As a result, palladium tested the $750 level between the 5th and the 10th as the dollar reached its strongest level against the euro since last September. Thereafter, palladium quickly rebounded; gaining $50 in just two trading days, a performance in dollar terms that was matched by platinum although this represented a markedly smaller percentage increase for the higher priced metal. Over the remainder of January, palladium traded broadly between $790 and $825, with attempts to breach the top of this range meeting strong resistance.
Platinum, meanwhile, peaked at $1,846 (a.m. fix) on the 19th but substantial US dollar weakness then saw the price fall rapidly to below $1,800, a level at which platinum largely remained over the course of the month. However, the start of February has subsequently seen both PGMs rally back towards recent highs, supported in part by improved confidence in the global economic recovery, especially in the United States.
The increasingly supportive macroeconomic data of recent weeks has buoyed the outlook for industrial demand for a range of metals, including PGMs, and not least across the auto sector. Recent figures for auto sales have generally surprised the market on the upside, with Japanese vehicle sales in January reported to have risen by more than 6% month-on-month.
In the United States meanwhile, sales were over 16.3% higher year-on-year in January and, although they were flat compared to the prior month this still led to renewed optimism about the gradual recovery across the industry. (Furthermore, sales of pickups and cross-over vehicles, which tend to have higher PGM loadings, have improved.)
Elsewhere, in the European auto market there were also signs of firmer demand, with new car registrations in December showing their smallest year-on-year decline since March. In China, automotive sales data for January is delayed due to the week long Chinese New Year holiday, making assessments of the state of that market more difficult to ascertain. However, the strength of the latest GDP figures has highlighted the likelihood that this will trigger further monetary tightening to quell inflationary pressures and in all likelihood this could hinder auto sales growth later this year.
Turning to investment, this has continued to provide a generally supportive backdrop to PGM prices over the past month. This was most clearly demonstrated in January by the trend in ETF holdings, which continued the strong inflows that had emerged in the final quarter of 2010 for both metals.
In fact, for the first time ever ETF holdings of palladium increased by more than 100,000 ounces for two successive months. As in previous months, this increase was concentrated in the ETF Securities New York and London funds, although there was also a lift of over 20,000 ounces in the ZKB fund. At the same time, platinum ETF holdings continued to grow at roughly half the rate of palladium, with a rise in January of a little more than 60,000 ounces.
Similar to recent months, but in contrast to ETF holdings, there were relatively small changes in the net investor long on Nymex for palladium, according to CFTC figures. However, it should be noted that in the case of platinum the net investor long continued to rise to a fresh all-time high, as fresh longs were placed in mid-month. As a result, the net long has more than doubled in just over 6 months, from its low on 20th July to the latest available data (for 1st February).
Turning to supply, the most significant development in the past month was the reports from Eskom, which provided some price support in the PGM market. This was due to flooding in South Africa having affected coal supply, leading to Eskom stating that the coal shortage may result in power cuts, with increasing concerns of tightness in the energy market as early as March. This is particularly important for the platinum price as South African output typically accounts for around three quarters of global mine production.
On the supply front itself there were also a slew of production figures in the past month. Lonmin stated in late January that its refined platinum production in the final quarter of 2010 dropped 17% from a year earlier to 81,982 ounces. This decline was not unexpected, due to the planned rebuild of its main furnace and poor weather but was cushioned by the tolling of some 9,000 ounces of platinum. Indeed, the company’s refined palladium production was actually up 10% over the quarter due to more than 35,000 ounces of tolled palladium output. The company had announced earlier in the month that it had reached an agreement with the National Union of Mineworkers (NUM) for workers to receive an 8% wage increase backdated to 1st October 2010, as well as a one-off payment of 850 Rand.
Elsewhere, Norilsk Nickel produced 645,000 ounces of palladium and 161,000 ounces of platinum in the final three months of 2010, down 10% and 7% respectively compared to the prior quarter. The company stated that the declines were anticipated and chiefly occurred at its Russian operations. In fact, taking 2010 as a whole the company’s annual production of platinum was 5% higher and that of palladium up 2%."
Following is an analysis from Standard Bank on PGMs's performance:
"January saw average platinum and palladium prices for the month both rise by 5% in dollar terms compared to December. The similar percentage increase for each metal, in stark contrast to palladium’s out performance over the previous six months (as shown in the chart below right), masked greater volatility in the palladium price during the past month compared with its sister metal.
The year began with the more volatile palladium realizing a steeper correction than for platinum. As a result, palladium tested the $750 level between the 5th and the 10th as the dollar reached its strongest level against the euro since last September. Thereafter, palladium quickly rebounded; gaining $50 in just two trading days, a performance in dollar terms that was matched by platinum although this represented a markedly smaller percentage increase for the higher priced metal. Over the remainder of January, palladium traded broadly between $790 and $825, with attempts to breach the top of this range meeting strong resistance.
Platinum, meanwhile, peaked at $1,846 (a.m. fix) on the 19th but substantial US dollar weakness then saw the price fall rapidly to below $1,800, a level at which platinum largely remained over the course of the month. However, the start of February has subsequently seen both PGMs rally back towards recent highs, supported in part by improved confidence in the global economic recovery, especially in the United States.
The increasingly supportive macroeconomic data of recent weeks has buoyed the outlook for industrial demand for a range of metals, including PGMs, and not least across the auto sector. Recent figures for auto sales have generally surprised the market on the upside, with Japanese vehicle sales in January reported to have risen by more than 6% month-on-month.
In the United States meanwhile, sales were over 16.3% higher year-on-year in January and, although they were flat compared to the prior month this still led to renewed optimism about the gradual recovery across the industry. (Furthermore, sales of pickups and cross-over vehicles, which tend to have higher PGM loadings, have improved.)
Elsewhere, in the European auto market there were also signs of firmer demand, with new car registrations in December showing their smallest year-on-year decline since March. In China, automotive sales data for January is delayed due to the week long Chinese New Year holiday, making assessments of the state of that market more difficult to ascertain. However, the strength of the latest GDP figures has highlighted the likelihood that this will trigger further monetary tightening to quell inflationary pressures and in all likelihood this could hinder auto sales growth later this year.
Turning to investment, this has continued to provide a generally supportive backdrop to PGM prices over the past month. This was most clearly demonstrated in January by the trend in ETF holdings, which continued the strong inflows that had emerged in the final quarter of 2010 for both metals.
In fact, for the first time ever ETF holdings of palladium increased by more than 100,000 ounces for two successive months. As in previous months, this increase was concentrated in the ETF Securities New York and London funds, although there was also a lift of over 20,000 ounces in the ZKB fund. At the same time, platinum ETF holdings continued to grow at roughly half the rate of palladium, with a rise in January of a little more than 60,000 ounces.
Similar to recent months, but in contrast to ETF holdings, there were relatively small changes in the net investor long on Nymex for palladium, according to CFTC figures. However, it should be noted that in the case of platinum the net investor long continued to rise to a fresh all-time high, as fresh longs were placed in mid-month. As a result, the net long has more than doubled in just over 6 months, from its low on 20th July to the latest available data (for 1st February).
Turning to supply, the most significant development in the past month was the reports from Eskom, which provided some price support in the PGM market. This was due to flooding in South Africa having affected coal supply, leading to Eskom stating that the coal shortage may result in power cuts, with increasing concerns of tightness in the energy market as early as March. This is particularly important for the platinum price as South African output typically accounts for around three quarters of global mine production.
On the supply front itself there were also a slew of production figures in the past month. Lonmin stated in late January that its refined platinum production in the final quarter of 2010 dropped 17% from a year earlier to 81,982 ounces. This decline was not unexpected, due to the planned rebuild of its main furnace and poor weather but was cushioned by the tolling of some 9,000 ounces of platinum. Indeed, the company’s refined palladium production was actually up 10% over the quarter due to more than 35,000 ounces of tolled palladium output. The company had announced earlier in the month that it had reached an agreement with the National Union of Mineworkers (NUM) for workers to receive an 8% wage increase backdated to 1st October 2010, as well as a one-off payment of 850 Rand.
Elsewhere, Norilsk Nickel produced 645,000 ounces of palladium and 161,000 ounces of platinum in the final three months of 2010, down 10% and 7% respectively compared to the prior quarter. The company stated that the declines were anticipated and chiefly occurred at its Russian operations. In fact, taking 2010 as a whole the company’s annual production of platinum was 5% higher and that of palladium up 2%."
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