A concise summary of what’s moving markets, the impact on base, precious and ferrous markets, including Theme of the Day.
What’s moving markets?
- While US stocks were little changed, European equities headed towards all-time highs yesterday after US central bankers soothed concerns about the Fed withdrawing its pandemic crisis monetary support. Yields on 10-year Treasuries were steady while the USD was lower.
- Chinese businesses should use futures to hedge against commodity price hikes, China Futures Association says. Chinese corporations should increase their use of futures products to hedge against recent price spikes in major commodities across the world it said. Rising procurement costs of raw materials have made the lives of small and medium enterprises tough, while higher prices of end products could lead to waning consumption, it said. The practice to hedging commodity prices is more common for large companies in China – over 600-listed enterprises have publicly announced their use of such derivative instruments.
- The International Energy Agency said the world needs to stop developing new oil and gas fields immediately to have any chance of reaching net-zero emissions by 2050. No new coal-fired power stations should be built, and electric cars should make up 60% of the global fleet by 2030. Oil prices should dwindle to $25/bbl by mid-century under the scenario they outline.
- Gold’s rally is extending, amid macro concerns surrounding overbought asset prices, inflationary fears, and concern that the Fed may be falling behind the curve. ETF holdings are also increasing, with six consecutive days of inflows following months of drawdowns, while the chart picture has brightened as prices trade above the 200-dma. Platinum gained following a report from Jonson Matthey’ that pointed to increasing use of platinum by automakers to replace more expensive palladium. The substitution is expected to be driven by Chinese automakers. Platinum prices fell despite a bullish update from the WPIC (see Theme of the Day). Palladium found support at $2,900.
- Zinc was in the spotlight as it broke out to a three-year high taking lead with it. Copper and zinc were supported by proposed tax hikes in major producers Chile and Peru, where left-wing politicians are gaining support. Chile’s bid to place a tax on sales that could reach as high as 75% on copper sales could potentially curb investment in new mining capacity. It is interesting to see fund flows rotate from one metal to the next. To a large extent, zinc, lead, and nickel have been recent laggards compared to copper and aluminum and are now starting to make their move as this rebalancing takes place. The USD fell below 90 on the USD index providing additional support. Tin was at the highs.
- Iron ore was underpinned by robust steel production in China, with crude steel output reaching 97.9Mt in April from 94Mt in March and bringing the YTD total to 375Mt, up 16% YoY. However, prices could be capped as China’s NDRC said they were looking into the ferrous market after iron ore prices rose almost 25% over the past month and further measures to cool red-hot prices could be in the offing.
Theme of the Day: Platinum in third consecutive annual deficit in 2021
- The World Platinum Investment Council (WPIC) today published its Platinum Quarterly for Q121, with a revised forecast for 2021. For the fourth consecutive quarter, platinum posted a small deficit in Q121 (-19koz), as strong industrial, automotive and jewellery demand and sustained investment demand for platinum outstripped recovering but constrained supply. As the global economy continued to recover, boosted by widespread stimulus measures, Q121 saw demand for platinum increase by 26% (+405koz) YoY to 1,969koz. With demand for platinum expected to increase by 5% (+378koz) to 8,041koz, 2021 is set to generate a deficit for the third year running of -158koz.
- Industrial demand increases 44%, bolstered by glass. Overall industrial demand in Q121 was 44% (+201koz) higher than in Q120 underpinned by a six-fold increase in demand YoY from the glass sector to 279koz. Glass demand is forecast to increase 70% in the next year, as demand growth for use in screens and building materials is met by capacity expansions, mainly in China.
- Automotive demand forecast to exceed 2019 levels, despite supply chain curtailment. Testament to the strength of the recovery, higher vehicle production and tighter emissions regulations increased platinum automotive demand by 8% (+50 koz) in Q121 despite production being undermined by semiconductor shortages and a tightening of lockdown measures in some regions.
- Recovery in platinum jewellery sector. Jewellery demand recovered by 22% (+85koz) YoY in Q121, with notable fabrication demand increases in China (+55%, +70koz), India (+35%, +6koz), and North America (+14%, +11koz).
- Investment demand remains strong. During Q121, overall investment demand increased 96% (+69koz) YoY to 140koz. ETF holdings grew for the fourth consecutive quarter in Q121, as anticipated substitution gains in autocatalysts and platinum’s use in hydrogen technologies continued to attract investor interest. The recent interest in commodities, as well as platinum’s linkage to the hydrogen economy, is driving a number of investors to consider platinum, who had not previously considered it. Investors see that platinum’s constrained supply, deep discount to gold and palladium and compelling demand growth potential greatly enhance the likelihood of investment demand growth.