Palladium Hits Highest Level Since February; Platinum Also Rises

by Kitco News

Palladium rose sharply and platinum also posted solid gains Tuesday, with analysts citing worries about a coal strike in South Africa ultimately cutting power to mines.

Additionally, traders cited worries about potential work stoppages at metals-mining companies themselves, as well as a weaker U.S. dollar and an improved outlook for the automobile industry.

At 2:05 p.m. EDT, September palladium was $28, or 3.5%, higher at $837 an ounce on the New York Mercantile Exchange. The contract hit a peak of $845.40 that was its strongest level since February. October platinum was up $14.50, or 0.8%, to $1,808.50.

One trader described heavy short covering—or buying to exit positions in which traders previously sold—in palladium.

Worries about the impact of a coal strike in South Africa appear to be having an impact on platinum group metals, said Jim Steel, precious-metals analyst with HSBC.

According to news reports, some 30,000 coal-mine workers in South Africa have gone on strike seeking a pay increase. This creates worries about availability of electricity needed for mining far below the ground in South Africa, the world’s largest producer of platinum and one of the two largest palladium producers. When platinum hit its record highs in 2008, electricity shortages curtailed mining operations and contributed to a spike in prices.

Power utility Eskom has indicated it has contingency plans, Steel said. Still, worries about the labor and power picture “prompted enough cautious buying to push both platinum and palladium higher,” Steel said.

Furthermore, the threat of strikes against mining companies themselves are supportive, said a research note from MKS Finance. “PGMs are seen supported by continued supply concerns, with unions in South Africa threatening strikes at the world’s biggest producers over wages.”

Some of the strength in PGMs may be a “catch-up” to the recent run to record highs in gold, Steel said. “Gold has tended to lead the PGMs. These strike and power issues may go some way to giving the market a reason to close the gap with gold.”

Some traders may have shifted from platinum to palladium, the analyst added.

A PGM trader linked the gains to movement in the foreign-exchange market.

“You have the euro up over $1.45, and the weak dollar is helping push the commodity indexes higher,” said the trader. This earlier fueled a rally oil back over $100 a barrel, he said.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, pointed to optimism for improving demand for PGMs from the automotive sector. He cited recovering Japanese industrial output after a spring earthquake, plus another profitable quarter for Ford. The company reported net income of $2.4 billion in the second quarter.

Gero cited trade, or industrial, buying. “There is physical demand,” he said.

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