platinum price

The World Platinum Investment Council‘s bullishness on platinum as a key investment and industrial asset, which we reported on last fall in an interview with the Council’s Director of Research Trevor Raymond, seems to be bearing fruit as we approach the end of Q1.

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Platinum bar prices and a couple other precious price points led MetalMiner’s Global Precious Metals MMI to rise 2.4% for March 2017, landing at a value of 84.

Global Precious MMIIndeed, the U.S. platinum bar price, up by nearly 3% this month, has been on an upward trajectory for the past three months, starting the month out above the $1,000-per-ounce level for the first time since October 2016.

A Focus on Platinum

Worries over supply shortages of the namesake of platinum group metals (PGMs) are still behind the investment opportunities that the WPIC foresees — so much so that the Council is pushing new initiatives on two separate global fronts.

Although holdings of platinum-backed exchange-traded funds (ETFs) fell to their lowest since mid-2013 last October, Reuters reported that WPIC “plans to launch an ETF in China, the world’s biggest consumer of the precious metal, and a coin-based fund in Europe in 2017,” according to an executive of the council.

“We are working on two deals in China for investment products. (An) ETF and retail platinum bars with a big state-run enterprise,” Marcus Grubb, director of market development at WPIC, told Reuters. The ETF itself was formed by leading platinum producers to develop investor demand for the metal, according to the news service.

Grubb told Reuters that India’s platinum jewelry sales are rising by 25-30% a year. The PGM’s star has been rising on the subcontinent, with some questioning whether it will overtake gold as the go-to in jewelry demand in India (which is the world’s second-biggest gold consumer, so not likely anytime soon…but still).

The council will also launch a $50 million coin-based platinum fund in Europe, he told Reuters.

Auto Market Fine…For Now

It helps that car sales still appear to be cruising along, even if at, well, only cruising speeds. Even though U.S. car sales dropped 1.1% in February over the same month last year, total vehicle sales in China, including trucks and buses, came in 0.2% higher year-on-year to 2.5 million units.

But, as my colleague Jeff Yoders reported, China is also entering the planned final year of a major government automotive purchase rebate which could affect sales as the incentive winds down. What this will mean for platinum use in vehicles remains to be seen.

The Supply Game: Latest Producer Moves

Back to the supply side. Shortage concerns have recently caused companies such as South Africa’s Northam Platinum Ltd. to buy up more platinum assets including mines, in this case from Glencore, Reuters reports.

Glencore’s Eland mine, containing some 21.3 million ounces of the metal, play into the Northam’s long-term production strategy — which, of course, banks on continued demand and higher platinum pricing.

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However, Northam said that the global economic outlook and low-dollar metal prices “remain a concern for them, at a time when it faces increasing power and labor costs,” according to Reuters. As of this writing, $1 = 13.08 rand, worse than last month.

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Well, perhaps these rebounds are not quite worthy of The Worm — but our Global Precious Metals MMI has hit its highest level since October 2016, climbing 7.9% to 82 for the February reading.

PGMs Lead the Way

Two of the biggest movers on MetalMiner’s precious metal sub-index were U.S. prices of platinum and palladium, rising 10.2% and 10.9%, respectively.

That palladium increase nearly got the price to the 18-month December 2016 high.

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Here’s the deal with palladium in a nutshell, from MoneyWeek:

“Both U.S. and Chinese car sales have been solid of late, with the latter rising at their fastest pace in three years (in 2016) and the former potentially set for another boost thanks to President Trump’s fiscal stimulus. China’s pollution problem is forcing it to tighten car emission standards, adds Chen Lin on Equities.com, which implies a steady rise in demand for palladium over the next few years.

“On the supply side, South Africa, the world’s top supplier, is not expected to increase mined output much. Analysts reckon that dwindling sales from Russia’s stockpiles means they are probably nearly depleted. TD Securities thinks the market deficit could double this year.”

What a Gold Mine!

Our intrepid editor at large, Stuart Burns — you might remember him from world-class macroeconomic coverage as it pertains to industrial metals, or (our) voice of James Bond’s Q — recently explored the wilds of India, and with him, he brought back gold.

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Or, to be more accurate, some gold coverage.
Soon we’ll publish Stuart’s take on the gold import situation in India. Here’s a taste:

“Although India has mines that go back more than 120 years, its annual gold production is miniscule. According to an article in the Hindu Times, that could be about to change. The Kolar gold field was forced to close in 2001 due to mounting losses at operator Bharat Gold. The state-owned company had been mining the Kolar reserves since independence in 1947 but the mines are deep, down to 3 kilometers, and Bharat was operating with outmoded technology and a large unproductive legacy workforce. But Mineral Exploration Corp. estimates show reserves to be worth $1.17 billion in the mines, with another $880.28 million in gold-bearing deposits estimated to be left over in residual dumps from previous mining operations.

India is never likely to rival South Africa, Canada or Australia as a gold miner, but that’s not the point — any contribution will lessen the impact gold imports have on the country’s balance of payments. With domestic reserves estimated at over 100 metric tons, there appears to be scope — with the right state and government backing — for miners to reduce some of those imports and create domestic employment.”

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Republican control of the White House and both chambers of Congress in January will put the GOP in a tenable position to pass significant tax reforms it has been pushing for years, such as lower corporate rates and a simpler tax code, experts say.

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It could be the most significant rewrite of the tax code since the Reagan administration.

The House Republican overhaul of the tax code is being written to expand the economy and avoid increasing budget deficits, U.S. Rep. Kevin Brady (R., Texas), who is leading the effort said on Tuesday.

“We designed our blueprint to break even within the budget, considering that economic growth,” said Brady, the chairman of the House Ways and Means Committee,at The Wall Street Journal’s CEO Council. At the same time, Brady said, if there are some deficits, he would accept them if the result was stronger growth. Avoiding long-run deficits could make it easier for Republicans to pass their plan under budget rules that avoid a Senate filibuster and forbid increasing future deficits.

Johnson-Matthey: Platinum Could See Surplus Next Year

The platinum market could return to surplus for the first time in six years in 2017 as lower auto catalyst loadings and weakness in Chinese jewellery purchases pull demand lower, refiner Johnson Matthey said in a report on Monday.

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Mine supply is expected to be flat next year, but supply of recycled metal from auto catalysts has the potential to rebound, it said.

Investors are still giving platinum the cold shoulder and oil production likely hit its recent high in September. Oil likely hit an output record in September.

Platinum Still Not Trusted

Investors bruised by platinum’s dismal failure to capitalize on a five-month strike in 2014 are not convinced that stocks of the metal have shrunk enough to justify a return to the market, despite positive supply-side news this year.

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Uncertainty over how abundant stocks of the metal are is continuing to curb investment interest in the metal, with holdings of platinum-backed exchange-traded funds (ETFs) falling to their lowest since mid-2013 this month.

Oil Likely Hit an Output Record in September

The Organization of the Petroleum Exporting Countries‘ oil output is likely to reach its highest in recent history in September, a Reuters survey found on Friday, as Iraq boosted northern exports and Libya reopened some of its main oil terminals.

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The increase comes despite lower output in top exporter Saudi Arabia and this week’s OPEC agreement in Algeria to limit supply to support prices.

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.

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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

Our Global Precious Metals MMI took a slight step backward this September, coming in at a value of 85 — a 4.5% drop from the previous month’s 89.

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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.

Global-Precious-Metals_Chart_September-2016_FNL

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.”

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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.”

My colleague and our in-house metals procurement specialist and analyst, Raul de Frutos, agrees — see his most recent report on the gold market.

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After hitting an all-time low in December 2015 – dipping down into the 60s – the Global Precious Metals MMI rebounded a bit and is now hovering at 70 for the second consecutive month.

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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.

Global-Precious-Metals_Chart_February-2016_FNL

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.

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Strong car sales globally – in Europe, China and the U.S., with the latter two hitting all-time highs – did not correspond with stronger performances for platinum and palladium prices.

Despite analysts calling again for deficits in palladium and platinum markets this year, Raul has written that “it’s hard to imagine these two metals rising while China keeps driving everything down.”

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Gather round, folks, dead-cat bounces for all

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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.

Global-Precious-Metals_Chart_January-2016_FNL

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.”

The steel markets, too:

“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.

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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.

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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.Global-Precious-Metals_Chart_September-2015_FNL

(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.)

Gold Drivers

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.

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Which won’t bode too well for catalytic converter sales, hence for PGM demand – and prices.

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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.

Automotive August-2015The 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.

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China Again

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 Steel is 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.

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This Month’s Prices and Trends

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