PLATINUM GROUP METALS

Speculators buying up platinum - but trade wary

The global auto market continues to recover, but industrial consumers of platinum still seem wary of prices much above $1,550

Posted: Friday , 20 Aug 2010

LONDON - 

The latest sets of numbers to greet the markets suggest that the global auto industry continues to recover, but also that - in the United States at least - industrial consumers of platinum overall are wary of platinum at prices much above $1,550.  It has to be acknowledged that these latest numbers relate to July and August, when business is relatively quiet, but the implication behind the figures from the futures markets is that there has been some industrial selling into price strength in recent weeks.  Speculators, by contrast, are looking - presumably - to the fact that support appears to have been building around $1,500.  The question begged is whether the recent failures at $1,550 mean that the markets may be in line for some profit taking and or stale bull liquidation - thus further extending platinum's period of sideways activity.

United States; light vehicle sales by month (000 units)

The accompanying charts show recent trends in sales of light vehicles in the United States and Europe.  The former is predominantly a palladium business rather than platinum.  The latter, which is dominated by platinum because of the metal's historical prevalence in the diesel sector, which currently commands approximately 50% of the light vehicle sector in Europe (and only around 5% in North America, although this is increasing as diesel, within its much improved fuel-efficiency over recent years, is becoming more competitive with gasoline).  This of course is changing further, as developments in fuel technology have paved the way for palladium to take up some (up to roughly 30%) of platinum's market share, with the two metals working in combination on diesel  emission control catalysts.

Euro zone; light vehicle sales by month (000 units

The automotive sector remains the most important element in platinum's demand profile, taking up roughly 43% of annual world demand - this from GFMS figures and covering both last year and also the previous decade.  In the palladium market, the auto sector absorbed 54% of demand last year and an average of 60% of total over the previous decade.  The second most important platinum consumer is jewellery, which has had something of a roller-coaster ride over the past decade, reaching three million ounces in 2002 (driven by China) but falling right back to 1.6 million ounces in 2008.  To put this in context, the jewellery sector took up 41% of platinum demand in 2003, and 38% of total in 2008.  As demand has recovered since the difficult times of 2007 and 2008 (high prices, followed by worsening economic conditions), Chinese interest has remained in the vanguard and is improving, but is still largely spasmodic and definitely still price-responsive.

Platinum's long term future demand profile therefore remains, as always, tied to a complex combination of industrial recovery, the ability of consumers to adjust to higher prices in order to reinforce the floor, and the attitude of investors and speculators towards risk.  As we approach the end of August, when business conditions should in theory pick up, the markets have been unsettled by a poor US manufacturing figure and a less-than-encouraging survey from the Philadelphia Fed.  Risk appetite has waned as a result, which has strengthened the dollar and pushed platinum prices back down towards the $1,500 level.  This price level has been attracting buying interest for some months now (since the May price fall) and the recent action on NYMEX, with speculative longs increasing by 17% since the mid-July fall,  suggests that it may attract such attention again.  The trade, however, has been selling into price rallies so the next few weeks look set to produce more wrangling - or, perhaps more politely put, consolidation.