Selling platinum takes center stage as commodities rebalance
in large part thanks to a stronger dollar as well as an imminent cut in the Fed’s bond buying program.
In a virtual speech at the Fed’s annual symposium in Jackson Hole in Kansas City, Federal Reserve Chairman Jerome Powell said the central bank could start cutting its monthly bond purchases this year, although ‘he reassured the markets that the Fed would not be in a rush to start raising interest rates afterwards.
But that was not enough to calm the nervousness of the market.
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According to strategists at Standard Chartered, the impending weakening and strengthening of the US dollar weighed heavily on the precious metals complex, alongside changes in risk appetite. Namely, tactical and longer-term investors have greatly reduced the whole complex. Markets became increasingly concerned about the Fed’s reduction schedule, the impact of the Delta variant on the economic recovery, and fears about slowing demand from China.
Nonetheless, Stanchart’s FX team believes the USD should start weakening again as the pace of vaccination picks up in Asia and the risk of an imminent reduction in asset purchases by the Fed. ‘is attenuated. It should be bullish for precious metals and commodities in general.
The market is now focused on the FOMC meeting on September 22, although a cutback announcement is considered unlikely before the FOMC meeting in November. The September meeting is expected to present the staff forecast, or “points” for 2024, with the 2024 points to reflect the two 2023 rate hikes.
Sale of precious metals
Platinum, palladium and rhodium have all hit intra-year lows amid large-scale divestment and as market balances continue to loosen.
Rhodium has fallen more than 15% over the past week to trade at $ 12,250 / oz at time of writing (August 2020 low) after trading near $ 30,000 / oz in March.
Palladium fell more than 14% and fell below $ 2,000 / oz, the July 2020 low, after testing levels above $ 3,000 / oz in May.
Meanwhile, platinum prices fell only 6% to $ 980 / oz while gold suffered the least, falling less than 2%.
Both ETF interest and tactical interest in platinum and palladium fell in early September, down 38.6 koz and 14.9 koz, respectively.
Net short positioning in platinum strengthened through a combination of long liquidations and new short positions, bringing the fund’s net length as a percentage of open interest to -10% while new short positions were large. part at the origin of a reduction of the net positioning in palladium.
The decrease in interest is evident in recent price movements, but it is also ahead of what is usually New York Platinum Week; a week of data releases which should confirm or refute softer supply and demand fundamentals.
Stanchart predicted that Platinum Group Metals, in light of pent-up auto demand and supply shortages, could see supply loosen further in the third quarter of 2021 thanks to chip shortages affecting auto production as well as the return of supplies from South Africa and Russia.
The excess platinum in Q2-2021 was largely due to the return of supply from South Africa, which more than doubled year-on-year and increased 13% q / q to 1,165 koz , the highest since Q4-2019, before COVID. Zimbabwe’s supply also rebounded as automotive catalyst recycling increased 42% year-on-year and 1% quarter-on-quarter. On the demand side, demand for automotive catalysts, unsurprisingly, rebounded amid pent-up consumer demand, which supported sales (up 75% yoy but down 7% qoq) . In contrast, ETF demand fell 75% q / q and 71% q / q to 31koz. The surplus was the largest on record since the first quarter of 2020, when the pandemic first appeared.
The key questions for Industry Week (to be held virtually September 20-21, 2021) are likely to focus on the following themes:
- Impact of chip shortages on automotive production for 2021 and 2022
- Availability of stocks in the event of a supply disruption
- The resilience of ETF investors and the impact of the Delta variant on supply growth.
Longer-term themes will likely revolve around substitution, the hydrogen economy, and equilibrium shifts. The London Bullion Market Association (LBMA) will also be holding its annual conference on virtually the same dates.
Stanchart predicted a rebound in Platinum Group metal prices as auto chip shortages ease and pent-up consumer demand is met.
Base metals rally eases
After posting strong price gains in the second half of last week, base metals retreated from recent highs at the start of the current week.
The gains were driven by aluminum prices, which hit a September 13 high since 2008, topping $ 3,000 / t, although it failed to hold onto those gains as the market closed. through profit taking. Prices for SHFE aluminum were also strong, topping CNY 23,000 / t before falling.
Stanchart said he maintains a positive outlook on aluminum prices as supply disruptions in China due to power shortages and policies to limit emissions and energy use have reduced current production and are likely to delay the start of new capacity.
In the past two months, China’s Yunnan Province has notified aluminum smelters to limit production in the September-December 2021 period below August production levels, not to mention the fact that Yunnan has already been negatively affected by hydropower shortages that began in May when the province’s energy bureau commissioned aluminum smelters to reduce energy use. Yunnan is the province where most of the new aluminum capacity additions in China will come from, due to the province’s abundance of renewable energy. Unfortunately, Yunnan has also been listed by China’s National Development and Reform Commission (NDRC) as one of the nine provinces with excessive energy consumption. Stanchart says these factors imply delays in bringing new capacity online in Yunnan.
Meanwhile, aluminum stocks on the stock market continue to decline. LME aluminum stocks recorded at 1.30 million tonnes (Mt) are at end-August levels; SHFE aluminum stocks continue their downtrend, posting a net outflow of 3.7 kt during the week ended September 10. At 228.5 kt, SHFE stocks are at their lowest since January 1st.
Physical aluminum premiums remain high due to robust demand and higher freight
Costs, thanks to strong demand and sales of electric vehicles.
The outlook for copper is not so bullish.
Copper prices have come under pressure recently, retreating from recent highs related to mitigating supply risk in Chile and weak import demand from China. Further mining wage deals have been reached in Chile in recent weeks, following deals reached earlier in September, at the Andina and Cesarones mines, easing supply concerns over the potential risk of a strike.
China’s copper import demand also remains weak, with preliminary results for August
Trade data shows imports of raw copper and products decline for the fifth consecutive month, to 394 kt, down 41% year-on-year, the lowest monthly import figure since June 2019.
Stanchart remains bullish on aluminum prices but is generally bearish on base metals longer term.
By Alex Kimani for Oil Octobers
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