Economy Brightens, So Investors Back To Platinum, Palladium ETFs

MetalMiner’s monthly Global Precious Metals MMI® finally got a jumpstart in January, as prices increased across several gold, silver, platinum and palladium markets.

(This, following a lull in November and a slight uptick in December.)

According to MetalMiner IndX℠ data, based on a monthly average, US palladium prices have increased almost 15 percent and US platinum prices have increased nearly 5 percent since September 2012; Chinese palladium and platinum prices have seen similar increases (13% and 5.3%, respectively, over the same time period.)

Although individual prices look to be on a gradual uptrend, the November-December 2012 relative stasis on our Global Precious Metals MMI® correlates rather closely with investor activity in the ETF market.

According to a quarterly report put out recently by ETF Securities – which offers physically backed platinum, palladium, silver and gold ETPs – $2 million worth of palladium and $33 million worth of platinum flowed out of their ETFs in Q4. (Both gold and silver ETPs had a net inflow.)

“Naturally, we would like to see a growing business,” said Will Rhind, managing director at ETF Securities, in an interview with MetalMiner last week. “We want to see inflows and better AUM (assets under management) performance from the year before.”

That looks set to happen, as the beginning of 2013 looks brighter. “We’ve had a positive start for the year, in terms of asset flows,” Rhind said.

As of last Friday, ETFS had 477,642 ounces of platinum, 477,642 ounces of palladium, and 31.44 million ounces of silver in its coffers.

“It’s about how people perceive the global economy,” Rhind continued. “If things are getting better, we see investor flows into the white metals (silver, platinum and palladium). At the beginning of the year, we saw little action in gold, but more in platinum and palladium, meaning investors are more bullish [on the PGM market].”

Indeed, economic indicators such as January US payrolls, the ISM’s PMI and December durable goods orders point to a steadily recovering US economy. China’s manufacturing PMI dipped, but their non-manufacturing PMI improved.

Platinum and Palladium Demand Strong
Auto sales both in the US and in China appear to be on the up-and-up for the year; coupled with a both platinum and palladium expected to be in deficit in 2013, it looks like prices may have continued solid support.

According to last week’s ETFS precious metal update, Eskom will raise electricity prices by 16 percent per year over the next five years, which “will considerably increase costs for the energy-intensive mining sector in South Africa.” This adds salt to PGM miners’ wounds that the labor strikes have caused there.

Also, palladium supply should be tighter due to Russian state inventories being drawn down. Flows into palladium ETPs remain at the highest level since August 2011, according to the update.

“Demand from our perspective has been good for our two [PGM] products,” Rhind said. “Overall global demand for the metals has been pretty strong. Good auto numbers out of China, particularly, lead to a bullish outlook.”

Update: A monthly record of more than 2 million vehicles were sold in China in January, according to the China Association of Automobile Manufacturers. Chinese auto-catalyst demand alone accounts for 13% of global palladium demand, according to ETFS.

by Taras Berezowsky