Standard Bank ran an interesting analysis of current palladium movements last week in an investors note. While cautioning that the evaluation of import and export data is only one part of a much larger supply/demand and investor sentiment dynamic we would agree there are some interesting directional trends highlighted by the bank’s analysis.
Broadly the note reviews the movement of platinum and palladium into and out of Switzerland. As the global hub for these metals, such movements can be very informative. Switzerland was a net exporter of 336,291 oz of platinum in May according to Standard Bank. This is the largest net export number for Switzerland in more than two years, indicating a strong demand due, the bank believes, the lower platinum price. The main destination of exports was the UK (140,059 oz), China and HK (140,556 oz) and Germany (52,844 oz).
The majority of exports to the UK appear to be sponge, which signals industrial demand and not ETF related flows. This is confirmed by ETF holdings that were largely unchanged during the month. The bank believes platinum has shifted to the UK for Loco London settlement on the London Bullion Market.
In May, China imported the largest volume of platinum from Switzerland since Feb 2009. China’s imports of platinum have steadily declined since Feb 2009 the bank says as the platinum price recovered, reaching only 16,800oz in Apr 2010. For China to be back in the market now suggests three issues:
- China is price sensitive and has proved to be a buyer when prices drop
- For China to be buying now suggests they see current prices as good value previously they were buying when platinum was around $1050 per ounce
- Last, China demand supports the bank’s own cost curve model which shows platinum is good value below $1500 per oz
With palladium, the figures are a little different. Although Switzerland was again a net exporter in May at 170,000 oz and again the UK was a large importer at 188,000 oz, China was largely absent in Swiss export figures suggesting demand is relatively weak at current prices. Indeed China has now been a net exporter of palladium to Switzerland since Dec 2009. As with platinum, the majority of palladium exports to the UK appear to be sponge which signals industrial demand and not ETF related flows. Palladium ETF holdings were largely unchanged during the month so, as for platinum, the bank sees the same inventory shift for Loco London settlement in evidence.
In summary, the bank sees the above movements, taken in isolation as supportive of further price strength in platinum but neutral for palladium.