Articles on: Metal Prices

On April 8, Cliffs Natural Resources announced “it has reached a negotiated settlement with ArcelorMittal USA Inc., and related parties, with respect to the companies’ previously disclosed arbitrations and litigation regarding, among other matters, price reopener entitlements for 2009 and 2010 and pellet nominations for 2010 and 2011, via this press release. In short, Cliffs will receive between $250 and $270 million from ArcelorMittal, in essence an acknowledgment that current spot market conditions justify Cliffs asking for a price adjustment. What we found most enlightening about the settlement involves the anticipated price realization for domestic iron ore. According to this post on Forbes, Cliffs’ revenue will have increased by about $8 per ton of iron ore pellets sold. That suggests Cliffs sells a little over 31 million tons of iron ore pellets annually. Yet their annual report says the company produced 26.2 million tons in North America (see chart below):

Source: Cliffs Natural Resources

Therefore, our math suggests Cliffs’ North American iron ore division would receive more than $10 per ton of iron ore pellets sold. The Forbes post goes on to say, “the additional [$8] would push our 2011 estimate for North American iron ore revenue per ton to around $130, whereas we might suggest it could be slightly higher.

But no matter.

The interesting point involves the comparison of the iron ore market in North America and the iron ore market for the rest of the world — in particular, Asia. According to The Steel Index, 62% iron ore fines (arguably of lower quality than iron ore pellets from the USGS) CFR Tianjin were $181.50 as of April 15, yet the domestic market still appears more than 25 percent below the China spot market (we could argue more than 25 percent below the China spot market price if we compare apples to apples, which we did not).

All of this brings us to another point, one MetalMiner has repeatedly written about on these pages does pricing in Asia impact North American pricing? Our answer yes and no and it depends.

Are raw material input prices converging, or perhaps better said, do raw material input prices correlate to one another? Will these inputs eventually become fungible? My educated guess is yes, but we’d have to do some historical charting to test that hypothesis. Over time, that may become the case. I think what we find rather interesting about this settlement involves the current noted delta between North American iron ore prices and China CFR Tianjin prices. The delta still appears quite wide.

At nearly 40% of the cost to produce one ton of steel (assuming one includes both iron ore and iron ore transport), iron ore pricing alone gives North American producers an enormous cost advantage to their Chinese brethren.

Which begs the next question how can the Chinese continue to ship so much steel to the US? We’ll save that for another day.

–Lisa Reisman

Followers of this site might agree that we talk a lot about drivers of pricing for various metals.

Sometimes it helps to examine those drivers in context of the big picture for a particular metal market. Say for example, steel.

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

When we look at steel markets, we end up talking about things like: the BDI (Baltic Dry Index), the cost of iron ore, coking coal, scrap, electricity prices, auto sales, housing starts, the Architecture Billings Index (ABI), building permits, etc. We could easily name another 25 indicators that coordinate with steel price movements and market trends.

However, we sometimes forget about context.

So when the AISI published its report, Profile of the American Iron and Steel Institute, we took a look to see what bits of data would best serve a steel-buying audience. Based on our review, two parts of the report have great relevance to steel buying organizations.

The first involves a complete listing of AISI members, capabilities, locations and products (hint: a great domestic steel sourcing guide). The second relates back to our discussion on drivers and metrics within the steel industry. In particular, this chart shows where in 2010, steel shipments went by industry:

Source: AISI (American Iron and Steel Institute)

As we look at this pie chart, it becomes easy to see why certain metrics have relevance within the steel industry. But what we find most interesting involves the metrics that tend not to garner much media attention. This week, we turn to something tracked by the Gerdau Market Update site, involving state fiscal metrics (yes, quick, where does that fit in the above referenced pie chart?)

Editor Peter Wright points to state fiscal receipts. Though his report cites rising state revenues for Q4 2010 vs. Q4 2009, he concludes, “Steel business activity that is driven by state or local budgets will not recover for several years,” as this chart shows. This metric impacts the construction portion of the pie chart.

Taking an 80-20 look at the pie chart, certainly by spending some time tracking metrics that serve as the measures of the health of the construction sector (and by that we include residential, commercial as well as institutional construction, read: power plant, schools, etc.), we can get our arms around a good portion of total steel spend.

Next, we look at automotive demand. For that we regularly report on monthly auto sales, but for those of you nerds out there who like more granular data, we love the automotive reports from the Consumer Metrics Institute, particularly the weekly index:

Source: Consumer Metrics Institute

So, poring over metrics that tell the story for construction and automotive gets us about 66 percent of the way there. That leaves an additional 14 percent that we really need to pay attention to. The 12 percent of shipments that went into the machinery and equipment sectors get us nearly there. Here the drivers, or metrics, may appear a bit more elusive.

But this is where we pay close attention to the ISM national manufacturing indexes as well as the manufacturing indexes coming from the regional Federal Reserve Board offices, durable goods orders and capacity utilization.

Next week, we’ll identify and discuss a few additional metrics pertaining to the steel industry.

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

(Continued from Part One.)

Electricity accounts for about 40 percent of average smelting costs for Chinese aluminum producers, against 30 percent elsewhere. Electricity cost pressures have been rising steadily; around 80 percent of China’s power comes from burning coal, which it produces and also imports from Australia. Coal prices have been rising relentlessly partly due to global demand, but not helped by the floods in Australia. Cancellation of nuclear power plant extensions in Germany are the tip of the iceberg in terms of a global reappraisal of nuclear as a source of power, and gas prices inasmuch as they are related to the oil price have also been on the rise, particularly outside the shale-rich gas market of the US. The theory goes, not unreasonably, that as energy prices rise, smelters’ margins will be cut, forcing closures and reducing supply; as supply is reduced, shortages will arise and metal prices will rise, hence energy prices will support aluminum prices.

The largest swing producer is China, as we said in Part One. Power costs to smelters are already reckoned to be some of the highest in the world and smelters have shown their willingness in recent years to idle and restart capacity as the market demands. But sources polled by MetalMiner say that even if Beijing does push through electricity price increases for smelters, a cost increase will only be applicable for those smelters that buy power from the grid — many don’t have their own captive power deals. Furthermore, the current metal price is well above the costs of production, even with the proposed electricity cost increase, so while margins would be squeezed, aluminum production would still be profitable.

What all this means for the gravity-defying aluminum price is very difficult to say. A recent Reuters survey for the aluminum market asking if the market was expected to be in surplus or deficit this year resulted in an average surplus figure of a 383,000 tons manageable without driving a dramatic price fall. But the forecasts ranged between a deficit of 1.056 million tons and a surplus of 1.558 million tons, underlining just how hard even the experts are finding it to predict how much capacity will be available to meet the predicted 8-9 percent growth in demand.

With a gradually cooling, China (no bad thing as it will ease inflation pressures), a slowly recovering global economy and likely continued high energy costs on the back of unrest and growing demand, we don’t see a lot of downside to the aluminum price for 2011.

–Stuart Burns

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And don’t miss the Harbor Aluminum Conference 2011!

When: June 20 22, 2011

Where: Swissotel Chicago

For: Aluminum buying organizations, metals traders, ETF investors, et al.

Price: $1665 through April 26; $1765 after

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While all the other metals have been adversely impacted by a combination of factors, namely the rising oil price, aluminum has remained remarkably well supported. So the theory goes, a rising oil price is negative for business, increasing costs like a form of tax. As costs increase, eventually the consumer pays and consumption falls, so why would aluminum prices continue rising and how robust are current price levels in the medium term?

Source: Reuters

As this graph shows, although virtually no aluminum around the world is smelted from electricity generated from oil, the aluminum price has tracked Brent crude — the most widely used measure for the oil price outside of the US — faithfully for the last five years.

At first sight, aluminum has also become divorced from the usual supply-demand equation of high stocks/low prices and low stocks/high prices. As the following graph from Reuters shows, as the aluminum price started to fall even before the onset of the financial crisis in 2008, stocks rose as the market responded to a new investment opportunity in forward selling and warehousing as lower metal prices made the model viable.

Source: Reuters

Contrary to many predictions of the imminent demise of this feature (in this column too, I should add), it still persists today and has continued to support the aluminum price. As the wider market came to realize that the true level of inventory available for consumption was only some 25 percent of the whole and that in practice the market had little more at its disposal than the level around the middle of the decade, the price has recovered. As the forward price premium available on the LME (Dec-2012) has recovered from $90/ton at the start of February to $120/ton now, financing deals have become more attractive, increasing the probability that current deals will be renewed when they mature.

Currently, the price is being supported by a number of factors beyond just prompt availability. Firstly, unrest in the Middle East is spreading slowly yet steadily from one regime to another. Among major aluminum-producing countries, only Bahrain has been seriously affected so far, but even there, aluminum production has been spared any impact. The fear is Qatar, Dubai or Saudi Arabia may succumb to popular unrest, which could impact some of the lowest-cost production in the world — even one plant idled at these massive investments could take 750,000 tons of annual production off line.

The greater influence to the price, though, seems to be the cost of energy as reflected in the oil price. Investors’ eyes have particularly been on China of late, home to 40 percent of the world’s aluminum production and consumption. According to a Reuters article, Beijing is considering its first electricity price increase from generators to grids since 2009, which could start in April, and in the news organization’s opinion, could curtail aluminum output as Chinese producers find their profit margins squeezed.

(Continued tomorrow in Part Two.)

–Stuart Burns

**Sign-up for a Free Trial to Harbor Aluminum!

And don’t miss the Harbor Aluminum Conference 2011!

When: June 20 22, 2011

Where: Swissotel Chicago

For: Aluminum buying organizations, metals traders, ETF investors, et al.

Price: $1665 through April 26; $1765 after

*Discount: All MetalMiner attendees will receive a $200 discount by typing in the letters “MM before their names on the registration form!

Click here to see the brochure and register for the event!

A couple of days ago we reported that heavy steel plate and galvanized sheet/coil may see global price increases due to supply constraints, namely rolling power outages for primary Japanese steel producers. Last week, Gerdau’s Steel Market Update suggested wire rod as well as hot rolled bar exports from Japan may also see some declines due to damage at an integrated mill and several mini-mills. But that may not limit supply or push up prices as China may pick up the missing volumes. Here in the domestic market, prices for HR band, CRC and all forms of scrap appear to still move in an upward direction — albeit at 1 percent increase levels, according to Steelbenchmarker. This suggests to us the upward price trend has started to slow. In fact, rebar declined by 2 percent. At these levels of increase, we tend to think the market has moved close or reached the top of the price curve. Other steel industry sources have indicated that pricing momentum has turned neutral.

On the other hand, plate prices increased by 4 percent, according to SteelBenchmarker. Since November, we have seen some buying organizations pay 32 percent more for plate today. With some galvanized steel and plate shortages expected from Japan, could we have a market in which a couple of steel product segments continue on an upward price trajectory while the balance of the market hits the top of the price curve?

Again, turning to Gerdau, their latest steel market indicator chart suggests some softening of the fundamentals, particularly around construction spending and some historical indicators such as general steel shipments and capacity utilization. But the Gerdau update report also suggests buyers still see rising prices. Does that mean we have a bifurcated market?

Oddly enough, China prices have not corresponded to domestic pricing (see this chart of key products from the last 30 days from China):

Source: MetalMiner IndX

As we said from the outset this year, we expect some ups and downs. In addition, we have also said, “very small demand upticks tend to create disproportionate price increases and in some cases, supply shortages. In addition, we know that the correlation between steel prices in China and steel prices in the US remains somewhat tight as raw material inputs (or steel-making inputs) tend to share the same general price trends (e.g. when iron ore costs increase, so too do scrap prices) meaning we can take pricing cues from places like China. Will China’s prices lead the US market or will it work the other way around? Stay tuned.

–Lisa Reisman

Nothing gets the creative juices flowing more than a good debate! We, particularly, enjoy debates in which we see nearly opposite points of view, all within the same time period. In today’s headline match, we examine one side of a debate around the direction of metal prices, particularly for copper, aluminum, zinc and steel as a result of the Japanese earthquake and tsunami. In the ring we have Goldman Sachs, who laid out their point of view according to a recent Reuters Metal Insider piece: “Demand and price risk for industrial metals has now skewed to the downside due to recent developments including Japan’s earthquake disaster, and as tighter monetary policy is priced in. In the other corner, we have MetalMiner’s own Stuart Burns, who on March 17, only six days after the natural disaster suggested demand may appear down but not out (and with it, prices).

When we received a call from Wayne Atwell, managing director of Casimir Capital, and he offered up some commentary on the direction of metals and mining markets post-Japan tsunami, we wanted to know who would win the fight, so to speak. Wayne reminded us of a metric he and many others in the metals industries use to assess demand for particular products specifically, metal intensity. We have seen this metric expressed as a number (or quantity) per individual or, as Wayne explained, as a percentage of global consumption by country. He suggested the following metal intensity levels:

Japan: 4.7% of aluminum, 4.9% of copper, 4.2% of zinc and 2.4% of thermal coal

By way of comparison, China appears as follows:

41% of aluminum, 39% of copper and 41% of zinc

“The Japanese economy has been hurt badly¦in the short term, they will consume less material. But metal prices are higher today then when this story unfolded. The earthquake/tsunami has thus far had no detrimental affect on prices, Wayne said, though he did acknowledge that the rebuilding effort will go “slower than you think. The sheer task of removing debris, gas shortages and moving goods in and out of the country will make for a slower recovery. Plus, designs will have to be drawn up and approved. From a commodities perspective, we can expect the demand to increase in about a year to a year and a half.

Which metals will likely [eventually] benefit from increased demand as Japan rebuilds? According to Wayne, “Zinc is the one on the top of the list   – 45% of zinc goes into galvanizing, 33% of copper goes into building plumbing and electrical and the like. Aluminum is pretty far down the list 10% of aluminum goes into building (much smaller).

But some metals supply markets will remain in short supply far in advance of any rebuild. In particular, according to a recent report from The Smart Cube, though annual steel production will likely drop due to rolling brownouts (and the Chinese will likely pick up the slack), two areas within the Japanese steel sector may create global supply shortages and subsequently, higher prices hot rolled heavy plate and galvanized sheet. The Smart Cube report gives an excellent overview of other supply markets in which Japan plays a key role.

But in essence, according to Atwell, “the market has sort of yawned at commodity prices. Uranium is down, coal is up as is natural gas, though that is harder to transport. You would need an LNG terminal for that. Hydro power is already operating at 100% of capacity.

Certainly, commodities tied to energy sources (nuclear uranium being the one exception) will see price escalation. Beyond that, whether falling demand or tight supply will deliver the knock-out blow, we may have to wait it out and go the distance.

–Lisa Reisman

That famous ad campaign, “What happens in Vegas stays in Vegas, no longer works in steel markets. During internal discussions here at MetalMiner for the past 12-18 months, I and my colleague Stuart have bantered back and forth regarding the impact of iron ore and coking coal prices in China and their relationship (or lack thereof, depending on one’s viewpoint) to scrap prices here in the US and vice-versa. Last year, the relationship appeared less than “fully correlated, to use a statistical term. But no longer¦

This past September I spoke at this event covering metals markets, where I met Roger Bassett from Plymouth Steel, who put forth a concept I had not heard articulated this way: all raw materials can be compared via “steel making units. By that, I can assume he referred to the notion that essentially key raw materials essentially become “fungible, meaning the trends in one ought to correlate with the trends in another. So as iron ore prices rise, one might expect scrap prices to follow suit.

But to understand how that trend actually correlates, we turn to an extremely informative website put out by steel producer Gerdau. In the chart below, though we can see a tight correlation between scrap and iron ore prices in China halfway through 2009, the price trends appear to have drifted apart throughout 2010, but now may head back toward a convergence:

Source: Gerdau Steel Market Update

Gerdau points to weakening demand from China buyers for iron ore and, as we recently reported, steel prices in China have correspondingly also declined due to a mix of factors including rising oil prices, poorer demand for construction related products and rising iron ore prices set to increase, according to our earlier story.

Chinese finished steel prices certainly have eased of late, particularly for construction-related products such as rebar and beams, whereas prices for cold rolled steels, used more in automotive and white goods have merely plateaued:

Source: MetalMiner IndX(SM)

If we were to superimpose our MetalMiner IndX chart of China steel prices to the US domestic steel prices, we would see a tight correlation (which is not to say that the prices were the same, merely that both markets appeared to follow a close price trend). They both moved in similar fashions. Today, we have a dichotomy in that the US market appears to still have upward price momentum (or as some believe, has started to plateau) but the Chinese market appears to have declined through the first part of this year and now plateaued.

Why?

We’ve stated why we believe Chinese steel pricing has seen downward and now plateauing price momentum. But here in the US, we still see prices ratcheting up (at least through March 14, according to Steelbenchmarker) though the economic outlook remains full of mixed signals — e.g. poor housing starts in February, against decent automotive demand and continued PPI strength. As is often the case, markets often move before reality sits in China steel prices may have declined in advance of Chinese monetary tightening and US prices may have improved based on a few positive economic indicators.

Can the divergence in steel prices between the US and China be explained via the iron ore/scrap correlation (or lack thereof)? Probably not — but no matter, we’ll keep watching all the correlations.

–Lisa Reisman

As investors in precious and base metals manufacturers and metal producers certainly among them begin looking toward ETFs as a viable alternative to hedging their metal buys, it may behoove them to look at the recent activity surrounding gold and silver, not only individually, but the trending relationship between the two.

Source: The Economist

Nicholas Brooks, the global head of research and investment strategy for ETF Securities, sounded reasonably sure last Thursday during a conference call that prices, and therefore returns, on the two precious metals are going nowhere but up.   “In today’s environment, with fiscal account and sovereign debt issues, I suspect gold and silver will benefit from that on a medium term basis, Brooks said.

Indeed, investors held their breath as the US and the rest of the international community debated a “no-fly zone for Libya as Col. Qaddafi’s forces and their opponents continue clashing, which not only sent gold higher, but also sent silver holdings in The iShares Silver Trust (the largest silver ETF in the world) to a record high, according to Reuters.

“I think silver is only chasing gold. Some people think silver could reach $100. But I guess it needs to surpass $40 first before hitting a new high,” a precious metals dealer in Hong Kong told the news organization.

The gold-silver ratio has been dropping significantly as silver has continued its streak (although not without its bumps along the way). The spot price of silver — $35.72 an ounce as of Mar. 10 — puts the ratio relative to gold now at about 40:1, dipping below that magic 50:1 mark and well below the average 60:1 that’s been prevalent over the past 30 years or so, writes Brad Zigler from the research-oriented site Hard Assets Investor.

Zigler gives us a refreshingly phrased reminder of the gold-silver ratio’s meaning. “The ratio, which describes silver’s buying power by dividing the per-ounce price of gold by that of silver, has averaged 60:1 over the past 35 years, meaning it’s taken 60 ounces of silver to purchase one ounce of gold. Though with silver’s most recent push to the $36/oz level, it now takes much less.

But there may be a correction point due very soon for silver. “Based upon silver’s outperformance, fueled by investment and industrial demand, there’s still room for some downside for the ratio, he mentions. “Amid the turmoil swirling in North Africa and the Middle East, safe-haven demand for gold could outstrip silver’s industrial-driven demand.

Since silver is much more of an industrial metal than gold, look for other macroeconomic factors — the volatility in oil prices for one, and the reported February trade deficit in China for another as signs that the silver price may indeed force the gold-silver ratio back to a more historical average in the foreseeable future.

–Taras Berezowsky

*Please click here to download the MetalMiner Conflict Minerals Legislative Guide, covering the details of the new Dodd-Frank Wall Street Reform and Consumer Protection Act and how mandated audits will affect companies that purchase tin, tantalum, tungsten and gold.


A recent CRU report outlines the attractiveness of tin as an investment vehicle, but uses the supply/demand picture to show that the (perhaps) over-reported supply tightness resulting from Indonesian production shortfalls may not be the end of the story.

Because tin commands such a high price per ton, and because of its recent entry into the physically backed base-metal ETF sphere, among many other factors, the LME cash price as of this writing stood at $31,745 a ton, well on its way to historical 1980s highs (in real prices, using the Dec. 2010 value of the USD). According to the report, tin’s very strong supply/demand stance is supported by more technical buying based on its upward trajectory and a decrease in hedge selling, making it an investor favorite.

From a supply-side standpoint, the main reason that supply is not as tight as initially predicted is that China is unloading an excess of the metal on the rest of the world, mostly due to the large premium of the LME price over China’s domestic physical price. (The country continues to be the largest global refined tin producer.) Secondly, high prices alone are keeping the demand-supply cycle going; higher prices spur an incremental increase in supply, which eventually may cool demand, and so on. Thirdly, even though larger tin mining projects are two to three years away from operation, small-scale production and recycling have been picking up. ITRI estimates that the global tin recycling rate to secondary refined pure metal is around 8 percent, and a United States Geological Survey report noted 14,000 tons of recycled tin in the US in 2010.

For context, and for an example of how China truly drives the global tin market, let’s take a quick look at how their production numbers stack up against the rest of the world. Here’s a graph of the top 12 tin companies in 2010:

Source: CRU Group

Note that five of them are in China. Four of the Chinese producers reported production increases from 2009 to 2010, three producers notched quite sizable gains, and one producer straight up doubled its output. In total, the Chinese producers represent nearly 40 percent of the Top 12’s 2010 refined tin production.

On the consumption side, tinplate usage which is, I think safe to say, may be of more interest and use to industrial-minded MetalMiner readers than other applications for refined tin has experienced a 9.1 percent increase year-to-year from 2009 to 2010 (after down years in both 2008 and 2009.) ITRI estimates the total tinplate usage in 2010 to be 58,800 metric tons. For more background on the tinplate market, check out what Rodrigo Vazquez, founder and senior vice-president of Harbor Intelligence Tinplate Unit, told MetalMiner back in February.

Back to the investment side, all of this means that the physically backed tin ETFs may be picking up as well. After a slow last December, with 180 tons held by the end of January, ETF stocks in Malaysian and Singapore warehouses went up to 405 tons by the end of February, and could be growing more as LME stocks are slowly dropping.

The Democratic Republic of Congo is a continent and a half away from China; where does the DRC stand in all of this? Check back in tomorrow for Part Two.

–Taras Berezowsky
*Please click here to download the MetalMiner Conflict Minerals Legislative Guide, covering the details of the new Dodd-Frank Wall Street Reform and Consumer Protection Act and how mandated audits will affect companies that purchase tin, tantalum, tungsten and gold.


In line with Stuart’s and my recent articles, palladium is hot, and platinum not so much. (In saying that, I am, of course, speaking rather relatively.) While Middle East unrest and European sovereign debt concerns push oil prices beyond $100 a barrel and gold prices are at all-time highs, other precious metals may be overlooked especially those with primarily industrial uses. But the rolling Chinese auto market is doing its part to keep PGMs in the spotlight.

Source: Bloomberg via ETF Securities

Platinum spot returns are up 18 percent over 12 months, which pale in comparison with palladium (86%). According to an ETF Securities report based on statistics compiled from Bloomberg, outperformance of platinum prices in early 2009 saw the platinum to palladium ratio reach historic highs. Palladium prices caught up by the latter part of 2009 and continued to outperform in 2010, causing the platinum-palladium ratio to fall to its lowest level in 9 years by February 2011.

This “pretty much reflects a slightly larger supply surplus in the platinum market that evolved in 2009 and 2010, said Daniel Wills of ETF Securities. The surplus did shrink in 2010, however. Overall, the disparity in the platinum-palladium ratio, marked by the swift run-up in palladium prices, bodes well for much better performing platinum prices in 2011.

“Palladium’s love affair will continue, but platinum will attract more interest than last year, said Edel Tully, an analyst at UBS, citing a stronger rand, rising mine inflation and supply risks in a recent Kitco report. South Africa, the world’s leading platinum producer, battles perpetual electrical power issues, and is also dealing with “strikes and safety-related stoppages at a number of the country’s mines. Tully said UBS forecasts an average platinum value of $1,905 per ounce for the rest of 2011 (which is short of the $2,000/ounce threshold that many South African miners consider spurring production) and $1,950 for 2012.

Platinum’s greater supply surplus as compared to palladium may also be moot due to Russia’s secretive stockpiles of the latter, keeping it under wraps as classified information. If it’s considerably more than investors think, then palladium’s higher price may come down. Russia produces just over half the world’s palladium, according to Johnson Matthey data. However, said ETFS’ Wills, there is less evidence of a palladium surplus (or Russian stockpiles being lower than widely expected and thus playing less of a role) in 2010, when Switzerland a key European hub for storing and trading of precious metals reported that the Russian shipments they received represented only a third of the twenty-year average.

Source: Johnson Matthey via ETF Securities

Investment demand for platinum is slowly but surely growing over the past three years or so averaging 7 percent of total demand from 2008-2010, against only 1 percent from 2005-2007, according to Johnson Matthey and represented by the light blue in the graph above. But total holdings considering both net inflows and outflows of the white metals over the past two months have remained rather stagnant. However, taking a more historic view, the uptrend of platinum and palladium physical ETF holdings over the past three to four months has continued mainly because of the US doing much more heavy lifting on the manufacturing side in addition to emerging market demand growth, Wills said. (The Fed’s implementation of QE2 also had a partial effect on this.)

“It’s been difficult to expand mine production for platinum over the past five years, and at the same time, there isn’t the same level of recycled platinum or palladium as there is in the gold market¦it’s been a rather fixed supply growth, said Wills.

The current economic landscape certainly serves as an indicator for where platinum may go. High oil prices, for example, encourage the purchase of diesel vehicles, which require higher platinum loadings than gasoline engines. The expected drop in Chinese car sales growth this year compared to 2010, as initially forecast by the China Association of Automobile Manufacturers, may also push prices the other way. From what we can see, even slightly slowed auto demand in China will continue buoying the need — and the price — for platinum. Palladium’s more upmarket cousin just may be due.

–Taras Berezowsky

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