Emission Control and Russian Depletion Underpin Bullishness in Palladium

ONG Focus | Insights | Written by Oil N' Gold | Tue Oct 26 10 07:37 ET

Crude oil eased in European session as stock markets retreated after disappointed earnings results. USD's recovery against major currencies (with the exception GBP) also weighed on oil and other commodities. In the precious metal complex, gold and silver retreated while PGMs remained firm. While US' proposal to reduce carbon emission from autos has been positive for platinum and palladium, Norilsk Nickel's comments about Russia's supply shortage is exceptionally bullish for the latter.

European bourses fell as UBS and ArcelorMittal reported weaker-than-expected earnings results. Earlier in Asia, equities plunged as lawmakers in Australia opposed the deal between Singapore Exchange and ASX Ltd. Weakness in stock markets induced selling in the oil market.

In the UK, GDP expanded +0.8% q/q in 3Q10, doubling consensus of +0.4%, after a +1.2% growth in the prior quarter. The pound rallied against the dollar and the euro as concerns that the BOE may expand the asset-buying program were eased. Moreover, the pound was supported as S&P retained the AAA rating of the country's government debts with a ‘stable' outlook. The rating agency said the British government has ‘shown a high degree of cohesion in putting the UK's public finances onto what we view to be a more sustainable footing'.

While PGMs, similar to others in the precious metal complex, have stayed firm due to weakness in USD, they also benefit from government policies. According to a statement released by the Department of Transportation, large trucks in the US must cut emissions as much as -20% by 2018 while heavy-duty pickup trucks and vans have to achieve up to a -10% reduction for gasoline vehicles and a -15% reduction for diesel vehicles by 2018. For vocational vehicles, a 10% reduction in fuel consumption and CO2 emissions must be achieved by 2018. The standards, aiming to control pollution and reduce oil imports, are positive to platinum and palladium demand as they are used as autocatalytic converters to reduce pollution from cars.

On October 8, Russian miner Norilsk Nickel said it expects Russian state stocks of palladium will be finished in 2011 and this year will be the last year when any substantial quantity from this stock has any chance to enter the market'. Data from Johnson Matthey shows that Russian state stock sales were 960K oz, 13.5% of total supply, in 2009. Elimination of such source would result in a deficit of 200M oz in 2011 if total demand stayed at last year's level.

 

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