ETFs indexed to platinum group metals (PGMs) prices hit 17-month highs as Chinese car sales jumped 46% in January. Multiple factors combined to drive PGM prices to multi-year highs last week.
Ongoing signs of strength from the China’s economy, together with persistent supply shortages, are providing strong price support for PGM prices, with platinum rising 2.9% and palladium 2.6% mid-last week, before easing at the end of the week. More than two million vehicles were sold in China in January, a record monthly high, according to the China Association of Automobile Manufacturers. Chinese auto-catalyst demand alone accounts for 13% of global palladium demand.
Declines in South African production, resulting from both infrastructure and labor constraints, could exacerbate the current 2013 deficit if they persist. While the fundamental picture remains strongly constructive for the sector, a sharp build-up in net long futures positions (see page 4) remains a tactical price risk in the near-term. [Why Platinum and Palladium ETFs are Breaking Out]
Russian palladium exports to Switzerland in 2012 drop 72% to lowest level in 22 years, exacerbating shortage. Swiss imports of palladium from Russia, a key barometer of Russian state sales, appear to be confirming a long-held industry suspicion that Russian state stockpiles are nearing exhaustion. Russian stockpiles have contributed around 13% of global supply on average over the past 10 years. Current market expectations center on a looming 10% palladium supply shortfall in 2013, but this could widen if Russian state supply is withdrawn from the market altogether.
Chinese gold imports reach record level. Chinese gold imports from Hong Kong rose 47% in 2012 on a year earlier, indicating a continued strong appetite for bullion from emerging market countries. The 557 tonnes imported into China through Hong Kong last year represents over 10% of estimated global demand for 2012.
Precious metals prices hold firm as ECB dents market confidence. ECB President Draghi spooked financial markets last week, sending the Euro into a sharp downward spiral against major currencies after noting the downside risks attached to the recent Euro strength. The negative correlation between gold and the USD reached the highest level since October 2011 last week. The lower correlation to USD saw gold and silver prices rebound, despite USD strength.
Key events to watch this week: The persistent divergence between the US and Eurozone economies should become more apparent this week with Q4 GDP expected to confirm the on-going recession in the Euro Area. This is likely to contrast with the US data which have been showing consistent improvement recently. US retail sales and industrial production could give an upside surprise going on recent trends in other activity indicators. Meanwhile, the Bank of Japan is likely to confirm is aggressive policy loosening, keeping pressure on the Yen in order to give a lift to the moribund Japanese economy.
ETFS Physical Palladium Shares (NYSEArca: PALL)