Palladium likely Outperforms Next Year

ONG Focus | Insights | Written by Oil N' Gold | Mon Nov 22 10 07:23 ET

Oil prices moved modestly higher in European session as an EU/ECB/IMF bailout for Ireland may help ease risks of contagion to peripheral countries. Currently trading at 82.82, the front-month contract for WTI crude oil rose after recording 2 consecutive weekly losses. Fuel prices also climbed as weakness in USD drove demand for commodities. Precious metals traded within narrow ranges with a positive tone. Both silver and palladium gained more than +1%, outperforming slow crawls of gold and platinum.

The program to fund Ireland would be financed from the European financial stabilization mechanism (EFSM) and the European financial stability facility (EFSF). It would also possibly be supplemented by bilateral loans to be negotiated by EU Member States with the UK and Sweden standing ready to consider a bilateral loan. The IMF also said it 'stands ready to join this effort, including through a multi-year loan'.

Market confidence has been boosted today but some investors, including us, worried that sovereign crisis in peripheral European economies will not be resolved after the rescue plan. The next country in focus is Portugal. Although the EU denied that Portugal may need to tap external funds as does not have the same size of problems in the banking sector as Ireland. However, the problem in Portugal is slow growth and high deficits. More importantly, if Portugal is unable to regain market confidence, it will eventually have the same fate and Ireland and Greece.

Societe Generale said palladium, gold and silver will extend their rallies in 2011 and precious metals will outperform agricultural products. The investment bank forecasts gold price will rise to 1500 to 1600 in 2011 while silver and palladium will rise 19% and 21% respectively.

We are also bullish on precious metals and believe palladium will be the best performer in the complex. As we mentioned in the weekly report, Johnson Matthey estimates palladium demand will jump +12.26% y/y in 2010, following contraction of around -8% over the past 2 years. Although supply will increase for the first time in 3 years, surplus will only be around 45K oz, the small level since 2000. Potential supply shortage supply in Russia may result to significant palladium deficit in 2011. We find ourselves more optimistic on palladium's outlook than Johnson Matthey, especially on Chinese demand. In the interim report, Johnson Matthey said that 'the demand outlook for palladium is so strongly weighted towards Chinese economic and industrial growth that any softening of that growth could reduce demand, moving the market closer to balance'. While we agree that acceleration in China's tightening measures to curb inflation and asset bubbles will slow demand for palladium, rise in living standards will increase domestic demand for vehicles. Moreover, new emission regulations will also stimulate uses of palladium as autocatalysts.

 

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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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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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