Articles on: Metal Prices

MetalMiner welcomes guest commentator John E. Gross, president of Rhode Island-based J.E. Gross & Co., Inc, a metals management and consultancy firm. Gross also publishes The Copper Journal, once a print-based industry newsletter and now an online site featuring data-driven charting and analysis.

The global copper market is no stranger to excessive bouts of volatility, whether it’s driven by fundamental factors, speculative bubbles and subsequent bursts, or far-reaching financial events.

Over the past five years, however, we have experienced two periods of extreme volatility that can only be categorized as unstable market conditions. And unfortunately, we seem to be in the midst of another episode that has the potential to bring the market to the brink of inordinately dangerous risk once again.

In May 2006, following four years of above trend growth in global demand accompanied by declining inventories of copper, the price was trending steadily higher, reflecting a strong fundamental environment. During the second quarter of 2006, however, the trajectory changed significantly with the price beginning to move up as deep-pocketed speculative traders squared off in the marketplace in what seemed to be a test of financial acumen and monetary willpower that completely overwhelmed all other considerations. From $2.20 in March, spot copper on Comex soared $1.88, or 85 percent, to close at $4.08 less than two months later in May.

Source: John E. Gross, using Comex data.

Not only did copper reach a record-high price, but we also saw record swings from gains to losses and back again as the market shifted erratically, with weekly trading ranges in excess of 60 ¢ leading up to the peak. In a final climatic showdown, however, when the weaker trader eventually capitulated, so did the price of copper, as it fell $1.23, to close out the year at $2.85.

Over the course of 2007 and into 2008, copper (and all commodities) traded aberrantly, driven by easy credit and a falling dollar, but offset by concerns of economic weakness stemming from growing losses in the housing sector that were thought to be confined to subprime mortgages.

Nevertheless, the global fundamentals for copper were still viewed as strong and declining inventories lent further support to the positive outlook. At the end of 2007, the spot price for copper stood at $3.03 and inventories held in Comex and LME warehouses totaled 211,500 metric tons. By March 2008, however, some 91,000 mt were taken off warrant, bringing the total held to just 120,500 mt and helping push the price up to $4.00 — approaching the high set in 2006.

During the first half of 2008, just as we saw in 2006, commodity prices overall (including copper and crude oil in particular) moved into record-high territory, driven by speculative trading and aided again by the dollar falling to new lows against other major currencies. Coincident with new highs being reached, and despite further signs of economic weakness in the United States, the thinking in support of this apparent contradiction was that developing economies along with and led by China’s growing appetite for industrial raw materials would have prices continuing to march onward and upward, as international competition for limited resources would persist. Indeed, with crude oil trading at $110 per barrel in March 2008 (up from $60 in the previous year), it was just a matter of time before we would see $200+/barrel oil. Thus, with the benefit of hindsight, we were blind to the hidden dangers that lie ahead.

Continued in Part Two.

–John E. Gross

We compared the relative positions of Alcoa and Rio Alcan in an earlier post, along with their respective readings of the future. Where Alcoa saw opportunities, Rio Alcan clearly saw if not problems, then at least lackluster growth.

Much will depend, of course, on global aluminum production and price levels. Growth forecasts are bullish, particularly in China, but also elsewhere. Alcoa’s own predictions are for aluminum demand growth even in mature economies at well above GDP over the medium term.

Source: Reuters

As the above graph shows, exchange stocks have been falling recently; at the end of September, some 4.564 million tons were held in LME-registered warehouses, down from 4.633 million a month earlier, suggesting Alcoa’s growth forecasts are indeed sopping up rising production.

According to a Reuters article, total visible stocks of aluminum, including the latest International Aluminium Institute (IAI) stocks, were estimated in September to be around 6.13 million tons, down from 6.32 million a month earlier, while aluminum stocks at the Japanese ports of Yokohama, Nagoya and Osaka at the end of September fell 4.1 percent from a month earlier to 231,400 tons.

Exchange inventory falls support the case put forward by some analysts that the market is in structural deficit, but a recent report by Reuters suggests there is more to the story than what is happening on the LME. The same article carries another post advising stocks of aluminum have almost doubled at the port of Rotterdam in the last three to six months.

Jouke Schaap, director of break-bulk at the port, is quoted as saying this week: “We have got 2.0-2.5 million tons of stocks of aluminum lying around the port right now, and that’s never a good sign,” adding that this compares with levels of around 1 million to 1.5 million tons usually. The flows have gathered pace in the last three months, suggesting up to a million tons of aluminum are being produced in excess of global demand, but are disappearing from the figures into long-term financing deals, held not on the LME but in private stores.

The worry is not that this metal will suddenly flow back into the market, but more that it shows the market is in significant oversupply, much more than official figures are suggesting. If the forward curve flattens and new financing deals become less attractive, this supply of surplus metal will wreak havoc on prices.

–Stuart Burns

It’s curious how two major metals producers can have apparently divergent views on the future of their industries.

In an interview with the FT, Klaus Kleinfeld, Alcoa’s chairman and CEO, observed that the future for aluminum prices was solid based on a number of observations regarding China’s production costs. As we have observed before, China is not a low-cost producer and Kleinfeld took the issue one step further, saying that China is actually not a logical or sensible place to be making aluminum at all. Its bauxite supply is limited, forcing the country to import about 40 percent of its needs — a trend that will only get worse as production continues rising (a point we will come back to).

Production costs for turning bauxite to alumina are high — 37 percent of Chinese refineries are in the top quartile worldwide — and power production relies heavily on pollutant-rife coal-fired power stations. Likewise, smelting alumina into aluminum is expensive in a country renowned for generally high power costs   (exceptions being hydro for those plants strategically positioned to be able to access such opportunities). Some 45 percent of Chinese smelters are in the top cost quartile.

Even so, the article cites Brook Hunt’s forecast that Chinese aluminum demand will rise from 19.8 million tons this year to 29.8 million in 2015, yet in spite of the 12th five-year plan expressly intent on reducing the expansion of power-hungry and polluting industries, much of this additional capacity will come from domestic sources. By 2015 only 2 million tons, or 7 percent, of primary aluminum will be imported still a sizeable quantity for a global industry, said by the World Bureau of Metal Statistics (WBMS) to be in surplus by only 378,100 tons in the first seven months of this year.

Alcoa sees this high-cost structure as an opportunity, believing it will open up the possibility of cooperation with Chinese producers looking to set up smelting operations outside the country and in partnering with Chinese firms to make high value-add products within China — typical of Alcoa to see opportunity in adversity. At the same time, Alcoa has announced they will not be proceeding with a long-mooted second smelter in Iceland, expected to be based on geothermal power sources, because the firm could not secure sufficiently attractive power tariff agreements. Maybe not surprising in the current market, although many of Alcoa’s plants are still making money at around $2,200 per ton; smelters elsewhere are not. This cost-of-production issue is another reason Kleinfeld feels the aluminum price has not got much further to fall for any prolonged period, anyway capacity would be shut (particularly in China) if prices fell much further.

Rio Retreat

Meanwhile, on the other side of the world, Rio Tinto has announced it’s getting out of the aluminum business. It’s splitting its Alcan division into two parts a six-asset Pacific Aluminum Asian division and a Rio Tinto Alcan division containing the rest and putting both blocks up for sale with values mooted by Deutsche Bank in a Telegraph article at US$8 billion.

A great result for Rio, having paid some $40 billion just four years ago for Alcan’s aluminum business at the top of the market, and now selling arguably not much above the bottom. How Tom Albanese, Rio’s CEO, has managed to keep a straight face, let alone his job, in the face of such an appalling squandering of shareholder value is unbelievable.

Going back to our opening sentence, clearly Alcoa, which is totally aluminum-focused, and Rio, which is largely an iron-ore producer (plus some other metals), are not going to have the same priorities. But Rio may yet (again) come to regret their decision to sell out of one product area when it’s in a dip to focus on another (iron ore) which arguably is at a peak all commodities are cyclical.

–Stuart Burns

Aluminum demand has remained remarkably robust over the last couple of years and the market is eagerly awaiting Alcoa’s quarterly update later today to see how sales have fared recently, not to mention the firm’s expectations for the rest of the year. The US market has been well supplied with ingot and although large quantities of primary metal have flowed directly from smelter into LME warehouse (particularly in Detroit), the US Midwest Ingot price has not been pricing in unholy physical premiums in the way European and Japanese destinations have at times.

Speculation has been raised as to whether the relatively healthy state of US aluminum demand and comparatively modest declines (20%) in the metal price relative to others like copper (30%) may encourage more US smelter capacity to come back on-stream. A recent Standard Bank note to investors suggested the US may need additional capacity as imports from Latin America, particularly Brazil, fall. Although the average cost of production in Brazil is one of the world’s lowest, according to Harbor Aluminum’s Jorge Vazquez, smaller non-hydro plants are still being closed and production is being hit. Latin America’s aluminum surplus fell from 1.2 million metric tons in 2009 to half that in 2010 and dropped by about another 50 percent to 355,000 metric tons in 2011, Vazquez is quoted as saying to Platts last month.

(Electrical) Power Play

Comparing the cost of electricity suggests a strong case for re-starting US capacity, according to Vazquez. North American electricity prices are said to be comparable with many other aluminum producing regions. The average cash cost to produce aluminum in North America is $1,900/metric ton, while in Western Europe it’s $2,048 and in China it is $2,594. Latin America has a low cost of $1,624, but its cheap energy prices were locked in “a long time ago” at $22/MWh and energy there today costs $149/MWh. Of the idled US smelters potentially able to come back on-stream, only Alcoa’s Tennessee plant has a cash cost estimated at $2,087/metric ton to be below the current LME price, and as Brazilian producers are finding, when cheap deals expire, the economics of production can change fast. As attractive as rates are in the US today, no producer is going to switch back on without a longer-term fixed power price deal.

Aluminum Market Outlook

Jorge Vazquez predicts a 500,000-ton global supply deficit this year, but not all analysts agree. Lloyd O’Carroll, senior vice president and equity analyst at Davenport & Co., sees a surplus of around 900,000 tons, according to the Platts article, while Paul Williams of CRU forecast that the world primary aluminum market will remain in a surplus of close to 800,000 tons this year. Even if we avoid a recession, Williams sees that surplus rising to more than 1 million tons in 2012, weighing against the chances of more US capacity being re-started. Looking at the current LME price, though, and the cost of production in China, one has to ask: how much Chinese production growth are we going to see when smelters are probably losing money over there? Jorge Vazquez may have a point.

Rarely have Alcoa’s quarterly statements been so eagerly awaited; we’ll be sure to update you on the details later this week.

–Stuart Burns

Just the other day, the New York Times reported that the remotely operated vehicles (ROVs) of Tampa, Fla.-based Odyssey Marine Exploration discovered 20 tons of silver on a shipwreck under the North Atlantic. In today’s silver prices (around $32 per ounce), that comes to roughly $18 million worth of the white metal.

The silver-laden shipwreck in question is the British vessel SS Mantola. In 1917, the German sub U-81 torpedoed the Mantola just off Ireland. The British government had apparently taken out an insurance policy on the equivalent of 600,000 ounces of silver contained on the ship, which in those days was worth 110,000 pounds Sterling, according to the company’s site.

The Mantola discovery comes on the heels of a previous Odyssey find. They noticed the 412-foot steel-hulled steamship SS Gairsoppa just a few weeks ago, 4,700 meters deep in the ocean and just 100 miles from the Mantola, and estimated 240 tons of silver to be held inside. Today, that silver is worth more than $200 million.

Judging by silver’s fundamentals, this surplus silver may be coming out of the water at the wrong time for silver’s spot market prices: Mineweb quoted Bart Melek, head of commodity strategies at TD Securities, as saying that due to a higher mining output forecast over the next two years and lower industrial demand, “silver will be in a growing surplus situation into 2013.

In all seriousness, however, Odyssey is getting a great deal. In a time when governments are hard up for funds, according to the Times, they contract with technologically savvy, private sea exploration firms to find and dredge up old treasures. Since Odyssey is doing the tough legwork, the British government worked out to allow Odyssey 80 percent of the salvaged spoils, while they keep 20 percent.

According to the company’s site, Odyssey chartered the Russian research vessel RV Yuzhmorgeologiya and used its low frequency sonar system, the MAK-1M, to find the shipwrecks themselves. Then, they went in with ROVs (anchored on a different boat, the Odyssey Explorer), for the visuals:

“Odyssey’s ROV inspections documented the poop deck port side entrance way to the Ëœcrew galley’ of the SS Mantola shipwreck.” Source of all photos: Odyssey Marine Exploration

The contents of the Mantola’s barrels remain “a mystery.”

The side-scan sonar tow fish that helped locate the wrecks.

–Taras Berezowsky

MetalMiner guest commentator Pia Marie A. Trellevik is a senior iron ore derivatives broker in the London office of FIS Ltd., the London-based global commodity interdealer brokerage firm.

A lot of the posts we’ve written over the past few months have covered very new futures markets within the steel complex that we believe have tremendous potential, even though their actual volumes remain low. Today we would like to highlight the one market in the “virtual steel mill that has been the true success story of the past few years — iron ore swaps and options.

The Evolution

Everything changed in 2009 when the mills and mines threw out their yearly price negotiations for physical iron ore sales and switched to a quarterly pricing mechanism. This seminal moment in the iron ore trade ushered in a new era of volatility in the physical iron ore market. With this volatility, uncertainty increased as well, driving both traders and mills to look for an alternative way to lock in their input costs. This is what has driven the development in the iron ore derivatives market. Just as we saw in the oil market of the 80s and 90s, when the long-term pricing mechanisms ceased, the market called for a solution and found it in derivatives. Nowadays, oil futures trade at a high multiple of the underlying commodity and while we are not quite there yet on iron ore futures, this year can surely be considered a watershed for the market.

The New Reality

2009 marked the first year for iron ore futures trading, with April — the first trading month — seeing 190,000 tons go through. Fast forward just two short years to May 2011 when 3.5 million tons of iron ore futures traded. 2009 saw a total of 7 million tons trading; 2010 volumes ramped up to 20.5 million tons; 2011 is shaping up to far exceed that amount. For the year to date, we stand at 28 million tons traded and are on target to exceed 40 million for the calendar year.

The iron ore market was as reluctant to change as the current various steel markets. But the iron ore market quickly adapted to this new paradigm and has educated itself and started to utilize these derivative contracts to help protect profit, hedge input costs and lock in forward periods, creating synthetic long-term deals that before were locked in during the yearly contract negotiations.

The current market is made up of all segments of the industry: mines, mills, traders, financial institutions. This robust dynamic has led to a price discovery marketplace that has shed light on an otherwise very opaque trade. Spot and forward iron ore pricing now is transparent and liquid, giving all participants the knowledge to make informed decisions. This allows price discovery to best reflect the market view on supply and demand. Of course, while the futures market can become disjointed from the fundamentals as happens in all derivatives markets from time to time, in the aggregate the market is better off for having such a robust futures market.

The indexes on which the settlement prices are based have become ingrained in the physical trade with more and more deals being concluded “index linked. This paradigm shift has changed the shape and nature of the global movement of iron ore. The futures and options market have given users yet another option to exploit for profit or utilize as a safe haven.

The developments in the iron ore derivatives market should be viewed as yet another example of how the changing nature of global commodity trading continues to evolve; providing the most efficient market in terms of transparent price discovery further levels the playing field for all involved in the industry.

–Pia Marie A. Trellevik

Note: The views and opinions expressed in this post are held exclusively by FIS Ltd., and may not necessarily be shared by MetalMiner.

A Financial Times article this week suggested that recent strength in the Baltic Dry Index, a measure of charter rates for bulk carriers, could suggest that fears of an Asian slowdown are overdone. The BDI has risen 52 percent over the last month or two, according to the FT, as China has continued to suck in unprecedented quantities of iron ore and coking coal. A recent Reuters article provides a useful graphic of how demand has continued to rise:

Source: Reuters

The FT explains the index is skewed towards the biggest Capesize ships, able to carry 175,000 tons or more at a time. The rise of the past two months has been almost entirely due to Capesize vessels. In part that is due to the recovery in Australian iron ore exports after the January floods damaged the country’s port infrastructure, but the other side of the coin is that the percentage rise is misleading.

After the 2008/9 crash, the market was awash with bulk carriers as new vessels continued to come on stream while existing vessels were laid up. So rates have dropped dramatically and are now rising from a low base, making percentage increases appear more dramatic than they really are.

Our own analysis of steel prices in China, most importantly measured in local RMB, do not tell such a compelling story.

Source: MetalMiner IndX

Prices have been on a slide since the summer, most notably in recent weeks, in spite of continued high iron ore and other raw material costs maintaining pressure on steel makers’ margins. The slide in prices seems highest among basic materials like billet and less pronounced in products like CR coil and sheet sold more on contract and less on the spot market.

Nevertheless, falling steel prices in conjunction with reports of slowing growth rather counter the suggestions of the Baltic Dry Index that growth is still robust at least in terms of recent years definition of robust. Track the MetalMiner Indx for local market prices in China if you have an interest in monitoring this deteriorating price scenario.

MetalMiner guest columnist Brad Clark is a senior derivatives broker who leads the St. Louis office of FIS Ltd., the London-based global commodity interdealer brokerage firm. Clark brokers physical and derivative deals on steel, iron ore, scrap and freight with a focus on the domestic US market. Arne Petter Kolderup, senior broker of coking coal for FIS Singapore, contributed to this week’s commentary.

A couple months back we wrote about how the launching of the coking coal swaps contract on the CME has completed the final link in the “virtual steel mill. This week FIS is excited to have been part of the first trade completed on this coking coal swap contract. The deal was for 9,000 metric tons of Platts Premium Low Volume coking coal for the Q1 2012 period, priced at $245 per metric ton, with clearing at CME.

In a very short time from this contract’s launch, it is already gaining attention and interest from a wide range of clients in both physical and financial markets. And it appears it couldn’t have come at a better time.

During a week when practically all financial and commodities markets took a beating on renewed fears that global growth is in jeopardy, this new risk management tool was put in place to help protect market participants from increased volatility in prices.

A Bit of Background

Some background on the coking coal markets helps shine a light onto this new contract’s attractiveness for the trade.

Seaborne coking coal trade volume has increased steadily over the last 20 years to an estimated 270 million tons worth $80 billion in 2011. Despite global output growing by almost 50 percent since 1991 to 891 million tons in 2010, quality coking coal has become harder to source, driving increased price volatility. Spot prices have moved over the last year from below $200 per ton to just under $350 at the start of 2011 and to around $270 this summer.

At a time of high input costs for mills, which drive increased price volatility and prices for finished steel products, end users have yet another tool to help insulate themselves from this changing price dynamic.

With any new financial instrument there will be a period of adjustment and a learning curve for new users of such tools, but the signs we are seeing already from coal producers, traders, and steel mills are extremely encouraging.

Obviously, we have a bias towards the promotion of these financial tools, but that bias is borne out of the measured understanding of the risks inherent in volatile commodities markets. All signs point to the volatility in the steel complex increasing. Uneven demand in the developed world, increasing demand from China and new supply coming in from non-traditional sources has all created a potent mix of volatility and uncertainty. We see this new coking coal swap as yet another potential safe haven for off-loading physical price risk.

— Brad Clark and Arne Petter Kolderup

The views and opinions expressed in this post are held exclusively by FIS Ltd., and may not necessarily be shared by MetalMiner.

Those watching the copper and other non-ferrous metals falling sharply over recent weeks on the LME, yet simultaneously reading that steel prices are moving up in the US, steel production is rising and iron ore prices remain firm, could be excused for wondering what’s going on. As Andy Home explores in a recent Reuters article, market fundamentalists familiar with non-ferrous metals and iron ore will argue opposite opinions that both metal groups are showing the “real market and the other is mistaken. Because surely it cannot be right that copper prices plummet on the expectation that demand is slumping and yet iron ore and steel prices rise on the expectation demand is increasing can it?

No, of course it can’t, so what we are seeing is largely a difference of perspective. With a robust futures market and slowing Chinese buying (recent weeks excepted), hedge funds and investors in the copper market are seeing a market with lower demand 12 months from now relative to today. Never mind that there are structural supply-side problems for copper, demand is easing, the dollar is strengthening and therefore “sell copper” is the overarching rule.

Iron ore and steel producers, however, are looking at steel growth in China and even in the US as robust.

Source: Reuters

Global steel production dipped sharply in August to 124.59 million tons from 127.51 million tons in July, but that is a seasonal trend seen every year as the northern hemisphere goes on holiday and Asian mills often undertake maintenance.

The global rate of production growth is still 9.8 percent, with China pushing 13.8 percent in July, and the first 10 days of September exceeding the 700-million-ton annualized run rate. Supporting the view that US steel prices will rise, Reuters reported North American steel production remains robust. US production growth actually accelerated from 8.9 percent in July to 13.8 percent in August, matching that in China.

But the common theme running through all this data is it’s “rear-view mirror.” Lacking a price-leading futures market, the ferrous metals market reacts more retrospectively than non-ferrous metals. Government can tinker around the edges, but particularly after the expenditure of every financial weapon in the Fed’s arsenal over the last three years, its ability to dramatically change the future is unfortunately very limited. We can be sure debt and banking worries will get worse before they get better — no one has the ability to make them otherwise.

Look no further than Europe to see what is happening when debt and banking worries begin to impact the real economy. Germany, France and other northern European economies, showing robust growth just 3-4 months ago, are now reporting negative manufacturing PMI figures. ArcelorMittal, Europe’s largest steelmaker, announced at the start of September it would shut down a blast furnace at its plant in Eisenhuettenstadt in Germany and while others haven’t rushed to follow, they are all on watch to do so.

China is again diverging from the West. Asian growth remains positive, although HSBC and Markit Economics manufacturing index has shown negative growth in Chinese manufacturing for the third straight month, according to Bloomberg. The reading of 49.4 for September’s manufacturing index compares with a final reading of 49.9 for August and 49.3 for July, all below the break-even 50 level, suggesting contraction. Long products production remains strong in China, driven by affordable housing construction projects, but with the economy slowing how much longer, will flat products continue to grow at +10 percent? Steel production does not exist in isolation from the rest of the economy. If Western economies stagnate or (worse) fall into temporary recession, steel production will be hit — it is already happening in Europe — and slowing demand in Asia should reduce sea-borne iron ore shipments.

In the long-term, there is a logical relationship between the metals consumption in an economy; they tend to all increase or all decrease, relatively speaking. If the markets are correct in seeing copper demand falling (and price falls are not just a function of a stronger dollar — non-ferrous prices are falling, euros, yen and pounds Sterling too, although not to the same extent as they appear to have done in dollars), then at some point steel demand growth must slow and also fall back, at which point price rises (for steel and iron ore) will be hard to justify, however disciplined mills and raw material producers are at managing capacity.

–Stuart Burns

MetalMiner coverage has underserved the platinum-group metals (PGMs) market lately, but recent releases of US auto sales and certain M&A activity have both conspired to bring them back on our radar. One recent acquisition saw Stillwater Mining of Billings, Mt., snap up Peregrine Metals, which opens the former up to copper and gold.

Hard Assets Investor interviewed Stillwater CFO Greg Wing, who said that China is still a primary driver in the palladium market, since most auto production and auto sales activity is centered on that country. To know what palladium prices will do, in other words, is to keep a close eye on how Chinese consumer demand drives auto production targets and sales.

“The projections are that by 2015, we could be producing 100 million vehicles in the world, Wing said in the interview, “a one-third increase over where it is today.

That would be pretty great news for palladium, as China will be doing the heavy lifting of fulfilling that projection — the US auto market, although slightly better in August, isn’t as influential on palladium demand — although it doesn’t look like it in the short term. Both auto production and sales in China were down from June to July. Yet Chinese auto production reached 10,462,400 units over the first half of this year, an increase of 2.33 percent compared with the same period of last year, according to the China Association of Automobile Manufacturers (CAAM). Also, sales were up 3.22 percent in H1 2011, compared with the same period in 2010.

Investors Flushing Palladium From Portfolios Lately

Luckily for industrial buyers, the palladium situation from an investment standpoint has looked pretty grim lately, as the metal has sorely underperformed this year so far as compared with 2010 causing investors to drastically reduce holdings. A Reuters report in late August cites a 5 percent decrease in palladium prices to $750 an ounce this year, the worst performing metal commodity this year to date.

That’s because when global growth enters a slowdown and causes concern over future prosperity, the industrial metals tend to suffer (at least in the speculative realm as an investor.) Palladium’s dip in early August coincided with worries over US and Eurozone debt issues, as well as reports that manufacturing and other economic sectors proved more sluggish than expected.

Source: Kitco

As a result, more metal had been sold off at once since 2006. Speculative holdings on the NYMEX have fallen roughly 20 percent this year, equivalent to about 286,300 ounces, according to Reuters.   Physically backed ETFs, such as the palladium ETF held by ETF Securities, have seen “unrelenting outflows this year.”

Well, this cycle will undoubtedly end sometime the only question is when. One possible answer could be not until the second quarter of 2012.

Platinum demand, on the other hand, looks like it could be lower in the long-term.  The reasons for this are 1) companies are already looking to substitute platinum with other metals in catalytic converters, such as gold, as Wing mentions. If other metals can (effectively) replace it, platinum demand will ostensibly drop and so will prices; and 2) platinum only constitutes 5 percent or less of the catalytic converter a “pretty small component, Wing said. Since so little platinum is used in the converters anyway, effective substitutes will reduce platinum’s industrial demand. (On the other hand, if Europe’s car market improves especially its diesel vehicle production, which is the primary user of platinum in its catalytic converters it could be a different story. Don’t hold your breath, though.)

As far as palladium’s future, however, once the global growth picture improves, and if China weathers inflationary storms to continue to make and sell cars, the metal’s price should remain supported reaching at least as high as its mid-summer 2011 levels, if not what it was in 2010. But we’ll have to wait a bit for that.

–Taras Berezowsky

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