AFKI Commodities Report: Platinum, Palladium Prices Surge On Supply Worries

By Lynda Davies AFKI Original Published: July 7, 2014, 02:27am
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Platinum prices hit a 10-month high last week boosted by supply worries despite an end to the five-month strike in South Africa’s platinum belt. Palladium was trading at close to its highest level since early 2001.

Spot platinum was at its strongest since September at $1,511 an ounce in the pm fix on July 2 on London’s Platinum and Palladium Market although had inched down to $1,503 in the pm fix on July 4. On Nymex, the platinum contract for October delivery settled $32.10 higher at $1,515 an ounce before easing back to close at $1,507.70 on July 3.

Concerns about further labor disruption in South Africa’s platinum sector are continuing to support platinum group metals, analysts say, particularly in the event of any redundancy or restructuring activity by the three platinum companies that were affected by the miners’ strike.

The five-month strike cost the three producers, Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin, R 24.16 billion ($ 2.2 billion) in lost revenue. The wages deal struck on June 24 with the main union , the Association of Mineworkers and Construction Union (Amcu), to end the labour dispute, will raise salary bills and most likely affect the companies’ profitability.

Spot palladium was fixed at $866 an ounce in the July 4 pm fix, its highest since February 2001. On Nymex, the September contract also hit a 13-year high  – at $867.50. In addition to worries about supply, palladium’s price rise in particular is being fuelled by strong demand from the auto industry. Palladium, like platinum, is used for autocatalysts. Data from the U.S. this week showed the country’s auto sales hit an eight-month high in June.

Gold hit its highest level in more than three months on July 1 as worries about Iraq and an escalation of violence in Ukraine continue to boost the precious metal’s safe-haven appeal . The world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, this week reported a large increase in its holdings of gold. Spot gold hit $1,332.10 an ounce on July 1, its strongest since late March. Gold futures for August delivery on the Comex division of Nymex closed at $1,326.60 an ounce before easing back by July 3 to settle at $1,320.60 an ounce.

Oil Prices Dip

Crude futures prices eased back further this week as supply worries over Iraq recede – at least for the time being.

Brent crude oil futures, the international benchmark, posted their biggest weekly loss since early January on the London-based ICE Futures Europe Exchange to settle at $111 a barrel on July 3, down $2.3 on last week’s finish.

On July 2, August Brent had dropped to $110.53, the lowest in three weeks. Two weeks ago, Brent crude hit a nine-month intraday high of $115.71 a barrel on fears that the ISIS-led insurgency in northern Iraq would hit the country’s oil production and exports.

Some 75 percent of Iraq’s current oil output is in the south of the country and from where most of the exports are handled, far away from the current fighting. Iraq’s Oil Minister Abdul Kareem al-Luaibi said last week the country’s crude exports will accelerate in July, although he did not provide a figure.

In June, exports averaged more than 2.5 million barrels a day, he said. In May, exports totalled 80 million barrels or an average 2.582 million barrels, according to ministry data.

Hopes for a recovery in Libya’s oil export capability are also weighing on prices. Rebels that had been blockading the country’s two remaining eastern oil ports of Es Sider and Ras Lanuf agreed to hand them over to government control. According to the Libyan government website, the two terminals are now in the government’s hands.

Es Sider and Ras Lanuf, which have been blockaded for nearly a year, have capacity to handle a combined 560,000 barrels of crude, according to Reuters. In April, an agreement freed up the two smaller oil terminals of Zueitina and the Marsa al-Hariga from rebel hands.

Libyan oil production and exports have been badly hit over the past 12 months by strikes and the blockade. Libya oil production was around 1.4 million barrels a day early last summer but hit a low of 150,000 barrels a day at the height of strikes and export blockade.

Indications of an improving demand outlook for oil in the two biggest consuming countries, the U.S. and China, however, are continuing to provide some support for the oil market, as well as worries that the Iraqi crisis may yet worsen.

U.S. employment growth jumped in June and the jobless rate dropped to a six-year low, data from the country’s Labor Department showed on July 3. China’s manufacturing activity in June was at its highest in six months, according to the country’s official Purchasing Managers’ Index (PMI) put out by China’s National Bureau of Statistics, confirming indications that the country’s economy is steadying. The official PMI reached 51 last month, up from May’s 50.8. The final HSBC/Markit purchasing managers’ index (PMI) for June rose to 50.7 from May’s 49.4, and the first time the index has been on the expansion side of the 50-point level since December. A figure under 50 denotes contraction.

U.S. crude futures were also helped by news of a 3.2-million barrel drop in the country’s commercial crude inventories for the week to June 27. The U.S. Energy Information Administration (EIA) on July 3 reported that domestic crude stocks fell by 3.2 million barrels last week to 384.9 million barrels.

Nevertheless, U.S. crude futures – the so-named West Texas Intermediate (WTI) – for August delivery on the New York Mercantile Exchange (Nymex) finished at $104.06 a barrel on July 3, down 42 cents on the day after dipping to a three-week low of $103.67 earlier in the day. On June 25, August WTI had topped $107 a barrel.

Coffee, sugar prices to hold up

Arabica coffee ended marginally lower, settling at $1.7203 a pound on New York’s ICE Futures exchange on July 3, down from $1.7215 at last week’s close. Rabobank in its latest Agri Commodities Monthly noted a further 5 percent decline in ICE arabica coffee futures over the past month as “the Brazilian harvest progressed and the apparent impact of drought became less pronounced than anticipated”.

However, the bank said it is maintaining its forecast for Brazil’s 2014-2015 (April 1-March 31) coffee production at 46 million bags, including 28 million bags of arabica, although added that it is still too early to determine final volumes.

The bank expects the downside of arabica prices “likely” to be limited over the next year on account of frosts now becoming a risk for the Brazilian crop and the impacts of drought expected to “linger” into the next season and constrain yields.

Rabobank’s outlook for robusta coffee also remains supportive on account of tightening certified stock levels and weather risks. With El Niño expected to arrive in September, the bank foresees further downward production revisions ahead and consequently has adjusted upwards its Liffe robusta futures price outlook for the last quarter of 2014 and the first quarter of 2015 by $50 and $100 a tonne respectively to $1,900 a tonne. Robusta for September delivery on London’s NYSE Liffe closed at $2,089 a tonne on July 3, up $55 on last week’s finish.

Thebank also sees weather risk remaining the key upside driver for ICE raw sugar futures, which it said are expected to “maintain an upward trajectory over the next year”. Production uncertainty is continuing to be driven by persistent dry conditions across cane-producing countries and the likely late onset of El Niño, it said.

The bank maintained its price forecast for the quarter just started at an average 18.2 cents a pound, a little above where the ICE September contract closed at 17.82 cents on July 3. For the fourth quarter, the bank’s forecast for ICE raw sugar futures is 18.5 cents.

Meanwhile, ICE cocoa hit another near three-year high on July 3 on continued strong demand from chocolate manufacturers. Cocoa for September delivery on ICE Futures U.S. hit their highest point since August 2011 at $3,149 a tonne before settling at $3,115.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.

 

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