You get the sense speaking with Trevor Raymond, Director of Research at the World Platinum Investment Council that the Platinum market is like a ticking time bomb – they are my words not his but during an interview prior to the release of the WPIC’s Platinum Quarterly Report for Q2, Trevor disclosed details about the supply side to the platinum market that bear further scrutiny.
The platinum market has been in deficit for five years now, a series of strikes and outages have consistently led to poor supply side numbers and 2015 was no different running a 520,000 ounce deficit. Investors looking for price increases have been thwarted by large, above-ground stocks that, while difficult to accurately quantify, are estimated by the WPIC as dwindling from some 4 million ounces to a current level of 2 million ounces over the period. Read more
However, the latter half of the summer has been kind to the gold, silver, platinum and palladium prices we track, with the past three months representing the highest MMI values of the entire calendar year.
All four precious categories tracked by the MetalMiner IndX softened over the month of August for our September 1 reading, contributing to the overall 4-point decline.
Main Index Drivers: Platinum and Palladium Prices
In a forthcoming MetalMiner analysis, my colleague Stuart Burns will share his findings from interviewing Trevor Raymond, director of research at the World Platinum Investment Council. The main takeaway? That the platinum market is like a “ticking time bomb.”
Essentially, the global platinum market has been in deficit for five years running, with mine strikes and shortfalls leading the way into a supply-side headache for the industry. Demand, meanwhile, appears robust, according to WPIC’s data and quarterly reports, led by developments on the heels of Volkswagen‘s diesel scandal, China and India’s jewelry desires, and a potentially interesting knock-on effect from rising oil prices.
However, the investment community will likely be the prime driver of PGM price movements in the future; but whether it’s a chicken-and-egg situation — rising prices spurring investment activity, or vice versa — remains to be seen.
Secondary Driver: Gold Prices
According to a recent release by Sprott Asset Management, “August marked the fourth successive month that gold prices rose in contrast to the dollar — something that has not occurred since metal peaked five years ago amidst the global financial crisis.
Demand is now at a four-year high with metal displaying one of its best yearly performances since the 1970s. Due to the rise of negative interest rates and a more volatile market, gold is looking like a safe bet for many investors,” right alongside platinum, it would seem; with a secondary positive aspect of the latter being its industrial element.
“As a result of sluggish global economic growth, central banks are pushing interest rates into negative territory, which is positive for gold,” according to Senior Portfolio Manager Paul Wong, along with the Sprott Asset Management precious metals team. “We are likely in the early stages of the current gold bull market, driven by a global push to a negative interest rate policy, currency volatility and a high level of cross-asset class correlation.”
Of the three heaviest-weighted metal price points within this precious sub-index, gold bullion in both the U.S. in China, and silver ingot/bars in the U.S. all increased over the the last month, the primary drivers buoying the February MMI reading.
Gold Price Outlook
The longer-term outlook, though, may not be all that rosy for gold prices. “Despite talks of China and Russia buying gold, I still see main factors such as a strong [U.S.] dollar and a bear commodity market keeping a lid on gold prices,” Raul de Frutos, metals procurement specialist for MetalMiner, told me. “The price rally seen in January is way too small to consider that something is changing in the long-term picture.”
“I still have a neutral/bearish view on gold,” he concluded.
The Bigger Price Story: Palladium Downtrend
However, in a more interesting trend on the industrial metals side of the precious sector, two of the PGM price points we track on the MetalMiner IndX – for U.S. platinum and palladium bars – dropped 1.7% and 8.1% (!), respectively.
The U.S. palladium price has ticked up for a few days in a row since we took our MMI reading on Feb. 1, but it’s lost a whopping 26.3% in value since the beginning of November 2015.
So what’s going on in the palladium market?
The recent stock market selloff in China, which caused global tumult, is the real culprit hurting both palladium and platinum. A strong dollar is not helping matters, either.
And this month’s Global Precious Metals MMI was no exception – after hitting yet another all-time low of 68 last month, the sub-index bounced back up to 70 for our January reading.
As for the dead-cat bounce, the Aluminum MMI had what looked like one, my colleague Raul writes:
“Aluminum has declined more than 30% on the year-to-date. A 3% increase after such a price slump means nothing. Indeed, aluminum producers should be worried that prices are not able to make a decent rally from these low levels. That only means that investors are only interested in selling, not buying.”
“Although steel prices took a break from their year-long fall in December, there are still many factors weighing down prices. It seems too early to bet on a recovery in prices. For corrosion-resistant steel buyers, the effects of the new import duties are certainly something to watch.”
And even the Copper MMI had a tiny one too, (stay tuned for that story, coming next week).
So, alongside the baby-sized Fed interest rate hike came a bit of a bounce for our precious metals price index. Welcome to the party.
The Platinum/Palladium Story
Putting aside gold and silver for now (global prices for which, on balance, fell for silver but rose for gold on the MetalMiner IndX), let’s focus again on the more industrial of the precious – the two PGMs we track.
As far as bigger end-use drivers go, the automotive markets have made most of the headlines lately. In China, car sales rose to the highest level ever, increasing in December by more than 23% from November 2014. That is the second consecutive month in which China’s passenger car sales grew by double digits. Here in the US, data from Ward’s Automotive Group shows 1.63 million vehicles were sold in December last year, making this the strongest month of 2015. In all of 2015, sales totaled 17.38 million, which exceeds the previous record high from 2000.
Producers like Johnson Matthey may have reason to look forward to 2016.
Low gas prices, an improving labor market and low interest rates, “coupled with a solid U.S. economy, could also make 2016 a year of robust vehicle sales,” noted Commerzbank analysts recently. “This should boost platinum and palladium, which are used in auto catalysts; palladium in particular should profit because the U.S. market is gasoline-dominated.”
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After hitting a new all-time low last month, the monthly Global Precious Metals MMI® bounced back up a bit to catch its breath, and registered a value of 76 in September, an increase of 2.7% from 74 in August.
So What’s At Play? Gold Prices and Fed Hikes?
Yesterday, Reuters reported that spot gold prices lost more ground, after drifting downward the past several days.
The precious metal was “hurt by a stronger dollar and as investors awaited a key US jobs report to gauge the timing of a Federal Reserve rate hike” – however, the global stock market [expletive]-show that has been rocking investor confidence lately may just be the only thing the Fed needs to go through with the hike.
(Besides, ADP‘s private-sector jobs report, released this past Wednesday, betrays severe underperformance – fewer than 200,000 jobs have been added in 6 of the last 8 months, as mentioned here.)
The gold price points from each of the 4 global markets we track (the US, China, Japan and India) all rose over the past month, and along with platinum increases in Japan, China and the US, were the main drivers of the wholesale increase in the Global Precious Metals MMI®. That’s likely due to the fact that equities markets have been doing so poorly – no, heinously – from China to the Dow.
So, on the face of it, gold was a factor in the global precious index’s rise…but let’s turn attention to the historical lows of palladium.
“No. 2” PGM More of a Concern
Palladium, platinum’s cheaper and less scarce cousin, hit another bottom. The US price of palladium bars tracked on the MetalMiner IndX℠ clocked in at $600 per ounce (log in or join as a MetalMiner member at the bottom of this article to get full pricing to all the precious metals we track) – the lowest since November 2012.
As my colleague Jeff Yoders wrote recently, although US auto markets appear robust at the moment, there is uncertainty in China and correspondingly lower auto sales there. Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013.
US auto sales remain the bright spot in the drivers of the monthly Automotive MMI®.
The Real Steel Story
Seasonally adjusted annual rate of sales for light vehicles rose to 17.8 million compared with 17.3 million a year earlier and was the highest since July 2005, according to researcher Autodata Corp. August was the fourth consecutive month that adjusted sales remained above the 17 million mark.
The Automotive MMI® still registered only a value of 73 in September, a decrease of 3.9% from 76 in August. Weak prices for most of the base metals that make up the index (HDG, copper, aluminum and lead) abound despite strong end user sales in the US. In China, auto sales are falling with the rest of the domestic economy there.
Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013 and such a large economy’s fall is dragging down the prices of automotive metals just as it is dragging down the prices of oil and other commodities.
Major iron ore producers, Rio Tinto PLC, BHP Billiton, Vale SA and Fortescue Metals Group Limited have ramped up production again despite massive iron ore and steel oversupply. Zacks.com believes they intend to continue exploring for iron ore in Australia despite lower growth forecasts from China and weaker iron ore prices, betting on continued strength in iron ore demand over the long term.
What This Means For Metal Buyers
This is normal behavior from major miners such as the Big Three (Rio, BHP and Vale) and almost-there cousin Fortescue. They can make a profit by squeezing volume out of their mines at low prices based on scale, alone, but iron ore investment is coming from non-traditional miners, as well.
India’s Essar Steelis making a $1.9 billion investment in the steelmaking ingredient in Minnesota, of all places. It’s difficult to imagine how such an investment makes long-term sense for Essar without a turnaround in both iron ore and steel prices. Since high-strength automotive steel alloys are one of the best-performing steel products on today’s market, it’s even more difficult to imagine those prices turning around without continued strong auto sales in the US and Europe and a turnaround in China and other emerging markets.
As the base metal and ferrous metal complexes we cover continue to take a bruising, the peripheral hits have struck our precious metals price index as well, with PGMs platinum and palladium leading the charge downward.
In fact, the monthly Global Precious Metals MMI® registered a value of 74 in August, a decrease of 7.5% from 80 in July – thereby hitting a new all-time low. Every single metal price point for gold, silver, platinum and palladium dropped across all geographies we track, including the US, China, India and Japan.
This index has never seen the 70s before, and it’s not having a really nice day as they used to say in the ’70s (at least not for investors).
According to my colleague Raul de Frutos, writing at the end of July, palladium prices fell as much as 14% during that month:
Palladium price since 2013. Graph: MetalMiner.
Ironically, palladium was the best performer among precious metals until just about a year ago when it started to fall, Raul wrote. So far, year-to-date, palladium has tanked 32% with the most precipitous drop showing over the past two months. So what’s been driving the price meltdown?
Just a couple days ago, BMW and Toyota Motor Corp. publicly voiced their concerns over China’s car market, saying that the days of double-digit growth are likely over, as reported by Bloomberg. Both companies are concerned about their profits getting dinged, and are therefore cutting back production based on low demand numbers – BMW, for example, said earlier this week that it had cut production in China by 16,000 cars so far this year.
South African mines, producers of 70% of the world’s supply, have been reporting production levels for platinum above those during the 5-month strike in 2014, as Raul has pointed out in his previous coverage. Combined with the lollygagging of the Chinese auto sector, looks as though platinum prices may not see a huge rebound for some time as well.
Remember, the strength of the US dollar plays a big role in the movement of this index. The dollar-to-euro exchange rate has been listed as the No. 1 driver of all the base metals in our latest, newly revamped monthly buying outlook, and it’s safe to say that’s no exception for gold and silver movement – when the dollar is strong, investors tend to leave gold behind as a safe haven a little more often.
The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period. For more information on the Global Precious Metals MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.
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There was no joy in automotive metals this month as prices retreated again amid ample supply and not enough worldwide demand.
The monthly Automotive MMI® registered a value of 76 in August, a decrease of 7.3% from 82 in July, another all-time low for the index. Before the last two months, its previous low was 85.
Steel Prices Falling
Base metals remain in a bearish market, one that’s starting to edge on historic proportions. Also, a glut of imported steel in the US market continues to drive down prices domestically while the lack of demand overseas only exacerbates the problem here.
Steel is not the only ingredient in the Automotive MMI and its fall has been helped along liberally by steep falls for aluminum, palladium, platinum and copper.
Vehicle Sales Faltering
At least in the US, sales of automobiles are still strong, too. A sales collapse in China is one of the many effects of the stock market crash and slow economic growth there.
“There’s excessive competition and automakers are building excess capacity, and to raise utilization of the plants, they will engage in excessive selling,” Fumihiko Ike, chairman of the Japan Automobile Manufacturers Association, said in reference to the market many are looking at to create global sales increases.
The Chinese market is generally regarded as one that provides higher sales margins to manufacturers and Volkswagen, BMW and other manufacturers are taking on a hit on sales there.
With a continuing metals surplus and only the US end-user market in decent shape, it’s difficult to predict a turnaround for the Automotive MMI. The Thomson Reuters/Jefferies CRB Commodity Index is hitting new lows as well.
Actual Automotive Metals Prices
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One may think that the Chinese equity market crash may help investors flock to gold as a safe haven – but not so fast.
A leading precious metals consultancy called Metals Focus, which interestingly, according to this article, has booted GFMS as the primary supplier of statistical data to the World Gold Council, points out that due to China being a gambling culture, “reckons there is more the likelihood that weak equity prices may end up adversely affecting physical gold demand. Losses generated by the impact of the stock market crash may well hit jewellery and gold artefact purchases, while the scale of the fall is such that potential investors nursing big losses may well not have the liquidity to move back into gold.”
Which would likely mean that gold prices won’t see a whole lot of support. As my colleague Raul de Frutos has noted around the office water-cooler recently, “gold’s safe haven thesis” is not really playing out, probably because of a strong dollar.
Saturday Night at the Palladium: Also Down
The palladium prices from all three global markets we track on our IndX (the US, China and Japan) fell by double digits over the past month. Platinum prices also haven’t looked so hot, looking at 6-year lows, mainly driven by weakness across other commodities and industrial metals.
Palladium spot price since 2012. Source: MetalMiner.
So what to watch in palladium and PGM markets in general?
Keep an eye on that US dollar – a strong dollar means a weak South African rand, and that means good news for SA producers to boost supply
Investment activity – ETF and other inflow/outflows
Next China PMI -> What that means for China automotive demand -> What that means for China auto production
Actual Gold, Silver, Platinum, Palladium Prices
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Through half of 2015, US auto sales are on track to hit record levels not seen in 15 years. After climbing more than 4% through July annual sales could approach the previous annual record of 17.4 million if they stay on this pace.
Yet, none of that demand seems to be helping automotive metal prices.
As robust as the US automotive market is, it can’t entirely make up for sluggish sales elsewhere that are depressing demand for metals such as steel, aluminum and copper and pushing our index further down. Even the exhaust system metals, platinum and palladium, saw a deep dive this month.
Chinese New Car Sales Barely Growing
New car sales grew just 1.2% in China this May. Further complicating matters, is the fact that the nation of 1.37 billion is starting to develop a used car market and it’s looking very much like Chinese consumers like paying less for a used car, rather than paying more for a new one. What a shock?
This is, of course, bad news for raw materials suppliers as the massive Chinese auto market only recently transitioned to automobiles being the main form of transportation. Less-metals intensive bicycles and motorbikes had filled that role until recently.
Chinese steel and aluminum manufacturers had been counting on more robust growth from the domestic new car market and a strong used market could stunt the advances many were planning to reap from new car sales.
Bearish Market Hits Home
The monthly Automotive MMI® registered a value of 82 in July, a decrease of 3.5% from 85 in June.
As we have documented liberally, the strong US dollar has created a bearish environment for all metals and automotive inputs are no exception. The steep fall observed this month in palladium, a metal that had previously held our automotive index up, was an example of just how much the bearish market is affecting even metals with strong demand. Palladium hit a two-year low this month and the bottom, subsequently, fell out of an already listing price index.
The drama surrounding Greece’s debt is compounding the bear market and, while it hasn’t yet caused strong currencies such as the dollar to see significant gains, its potential to do so threatens all commodities. This September: SMU Steel Summit 2015
The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends over a 30-day period. For more information on the Automotive MMI® constituent metals and their exact price movements, log in or register below!
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