Johnson Matthey’s share price dropped further during September when the scandal first brook, but has since recovered as it dawned on investors that the result of VW’s emissions scandal is likely to be tougher controls… even if there is a marked swing to gasoline engines.
Source: Thomson Reuters
Johnson Matthey was already in trouble due to a combination of falling platinum group metals prices and slowing demand, notably in key automotive markets such as China, for jewelry and in the oil industry as investment has been cut back. Read more
First, on the supply side the resolution of last year’s five-month miners strike led to a surge of metal supply this year, up 20% for the comparable period. That growth should level off in 2016 with only a 2% increase predicted on the back of growing supply from Zimbabwe. Read more
This is the first full year for the new LBMA gold and silver prices. More open and transparent processes for precious metal prices can only help purchasers in the long run by giving them more information about what goes into the prices they are quoted. We are thankful for market transparency in all its forms.
Happy Thanksgiving from everyone here at MetalMiner!
That’s why our own MetalMiner IndX is updated daily with over 600 price points from domestic and multiple international markets. We’re always happy to add more open and transparent price points. Read more
In part one of this series, we analyzed how metal prices have fallen in three selling waves. In this section, we will analyze the current sell-off (third wave) in metal prices that a rising dollar is producing.
Investors expect that the Federal Reserve will rise interest rates in December for the first time since 2006 while the European Central Bank plans to continue with more easing monetary policy. This, and the fact that growth prospects look brighter in US than they do overseas both add to the dollar’s attractiveness. Indeed, we suspect that the bullish move in the dollar over the past few weeks could be the beginning of a bigger move which could depress metal prices even more down the road.
Let’s take a snapshot of industrial metals to see the individual impact of a rising dollar since mid-October.
Three-month London Metal Exchange aluminum. Source: MetalMiner analysis of FastMarkets.com data.
Aluminum prices are trading below $1,500 per metric ton, the lowest level since 2009. Notice how prices fell sharply as the dollar surged in mid-October (red arrow). Read more
Platinum prices fell around 15% in the last three weeks. Prices are now at their lowest levels since January 2009. What is causing the price slump? Is it just the Volkswagen scandal? We don’t think so.
Platinum hits 6-year low. Source: MetalMiner analysis of @StockCharts.com data.
Just before prices plunged, the London Bullion Market Association (LBMA) held a conference in Vienna in which senior representatives from all sectors of the precious metals market attended. The audience predicted an average platinum price of $1,072 per ounce for next year.
They also predicted higher palladium prices for 2016, averaging $844 per ounce. If you read us, you probably know that we don’t like forecasts, especially when based on opinions. The LBMA audience better be lowering their forecast after prices nose-dived days after the conference. Read more
The fallout from the Paris attacks was felt in markets this morning as both gold and oil jumped in early trading. There’s still little good news to report for copper, which saw a major producer slash its premium for delivery to China.
Gold, Oil Up in Early Trading
Gold and oil edged up in nervous trading this morning following the deadly attacks on Paris and large-scale French airstrikes in Syria, although broader commodities markets remain weak on poor fundamentals, Reuters reported.
Gold, typically seen as a safe haven in times of heightened risk, jumped about 1% as Asian shares and US stock futures fell but later fell. The euro skidded to a 6-1/2 month low. Oil prices edged higher, but copper slipped to a six-year low.
Codelco Cuts Chinese Copper Premium
Chile’s Codelco, the world’s top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market’s biggest buyer.
In a move that will deepen concerns about waning consumption as growth in the world’s second-largest economy slows, Chile’s state-owned miner, Codelco, offered a premium of $98 per metric ton for 2016 term shipments, down from $133 per mt this year.
With the Federal Reserve hinting at an increase in interest rates soon and a few metals gaining at least a little bit of their lost values back, the search for a market bottom is on.
This month we saw some encouraging signs that the metals undergirding our MMIs, such as Copper and Stainless, were posting gains but the overall trend still pointed to historically low prices. The underlying prices comprising our steel, aluminum, construction and renewables indexes all fell again.
Even the strong performers in this bear market, such as copper and stainless, come with a caveat: that their gain — for copper, a 1.5% increase and a 1.4% increase for automotive — or simply steady performance could very well be mere pauses in a year of losses, rather than true market bottoms. The Stainless and Rare Earths MMIs managed to hold their low price levels from October. Certainly good news for producers in this market, but not indicative, yet, of any real potential for future increases.
The Global Precious MMI showed a genuine increase of 4.1% with strong price performance from all its individual metal components. This includes increases in gold and silver as hedges against what some investors perceive as a future move to weaken the US dollar’s continuing strength against commodities and other currencies, an increase in interest rates.
It’s still too early to tell but maybe, just maybe, some of these metals are poised to bottom out.
In October, the yellow metal rallied thanks to a weaker US dollar, but we already pointed out that the rally was likely to be short-lived as we expected the dollar to start rising. This is exactly what happened, the US dollar index recently made a seven-month high while gold prices fell sharply with the rest of commodities tied to the dollar (commodities are priced in US dollars and thus are negatively correlated to dollar fluctuations).
The spot price of gold. Source: MetalMiner analysis of @StockCharts.com data.
This month, investors now see a 70% chance of a Federal Reserve interest rate increase in December after the release of positive non-farm payroll numbers and the latest comments from the Fed.
PGM prices rebounded this month from being hit by the Volkswagen scandal last month, buoying the entire Global Precious Metals MMI for November. Our precious metal index hit 77 this month, a 4.1% increase from last month.
It helps that the rest of the complex did well across the board, with every single price point for platinum, palladium, and also gold and silver, appreciating across US, EU and Asian markets.
The US platinum price on the MetalMiner IndX ticked up considerably more than the US palladium price, almost-but-not quite proving our point from last month that “ultimately, in MetalMiner’s view, based on how investors reacted to the [VW] news, we’ll likely see both platinum and palladium trending in opposite directions in the short-to-medium term.”
Speaking of those investors, some big news in the ETF world: apparently platinum and palladium ETF outflows have approached some record lows. According to Reuters, platinum ETF holdings tracked by that news giant dropped 160,000 ounces near the end of October. Reserves of palladium ETFs were down 207,000 ounces over that same month, resulting in ETF holdings of both metals hitting their lowest since early 2014.
EconoTimes reported that just a few days ago, platinum and palladium ETF holdings were reduced by a further 31,600 ounces.
Interestingly, net-long positions, as the source reports, had risen to 13,500 contracts in that last week of October, which is itself the highest level since the beginning of July – so are we seeing investors taking a longer-term, slightly more bullish outlook? Remains to be seen.
In Economic Driver News: Fed Interest Rate Rise
The Federal Reserve recently announced that they would not raise interest rates, but it’s not ruling out a rate hike before the end of the year. Fed honchos see current economic indicators as generally favorable, which is the main reason the short-term rates have remained at near zero for the 7th year in a row.
However, as my colleague and MetalMiner’s lead forecasting analyst Raul de Frutos has pointed out, this waiting game is “generally bad news for metal prices and all commodity prices and the longer the Fed delays the more likely it is that when a rate increase does finally happen it will only make the US dollar more attractive to investors seeking yields.”
Which, of course, should bolster the dollar and, in turn, could ding at least gold prices…
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A possible obstacle to quick passage of an infrastructure bill, a gas tax hike, could be introduced today in the House of Representatives and platinum and palladium exchange-traded funds have seen a huge outflow this year as prices fell.
Gas Tax Hike?
Democratic Rep. Earl Blumenauer of Oregon hopes to attach a proposed 15-cent-per-gallon fuel-tax increase to the $325 billion transportation-spending bill the House will look at this week. “My amendment will not only fully fund H.R. 3763, but also provide enough revenue to increase investment above the current, anemic levels of spending,” he said.
His proposal would hike the current 1.84-cent federal gas tax to 33.4 cents per gallon. State taxes on top of that would put the total tax bill on a gallon of gasoline over 50 cents in some states. The House Rules Committee is scheduled to consider amendments to the highway bill this afternoon.
Full passage in the House could come as early as this week as leadership has said they would like to get a full bill to the President’s desk by Thanksgiving. A similar bill has already passed the Senate but would need to go through a conference committee to eliminate differences between the two proposals.
Platinum, Palladium ETFs See Huge Outflow
Platinum- and palladium-backed exchange-traded funds tracked by Reuters are facing their biggest monthly outflows since the data series began in 2010, after prices of the white metals slid to multi-year lows earlier this year.