Platinum Market Review

Platinum Market Review
July 25, 2016
Platinum
Price (July 25, 2016): $1,068.00
1-week change: -$15.00 (-1.4%)
1-year change: +$92.00 (+9.4%)
Platinum rallied to a fresh one-year high on the 12th of July at $1,106 an ounce as prices followed the precious complex upward. The metal was also able to outperform gold
in July, narrowing the discount to gold to a current $240 an ounce from a recent record
$340 an ounce differential. A return of some stability in global equity markets likely
benefits the industrial metals and continued reports of strong vehicle sales across the
EU should further bolster physical demand for the metal. Current wage talks in the
South African platinum sector should also support decisions by speculative investors
to maintain positions in the metal in the off-chance of a repeat of the five-month long
labor disruption that affected the industry in 2014. Policy decisions from the US Fed
and the Bank of Japan expected later this week could also affect metal prices.
However, with a steady weakening in the Chinese economy, any significant increases
in demand for platinum appear unlikely. China purportedly accounts for approximately 40% of annual global primary supplies of platinum. And with the price of the metal
gaining some $150 an ounce from late-June to recent highs, a period of consolidation
may be expected near-term.
Chinese trade data were weak again in June with exports falling 4.8% and imports
Platinum Price
Platinum Price
Previous 2-Weeks
Previous 12-Months
$1,095
$1,100
$1,090
$1,050
$1,085
$1,000
$1,080
$1,075
$950
$1,070
$900
$1,060
$800
$1,055
25-Jul
24-Jul
23-Jul
22-Jul
21-Jul
20-Jul
19-Jul
18-Jul
17-Jul
16-Jul
15-Jul
14-Jul
$1,050
13-Jul
18-Jul
6-Jun
27-Jun
16-May
4-Apr
25-Apr
14-Mar
1-Feb
22-Feb
11-Jan
21-Dec
9-Nov
30-Nov
19-Oct
7-Sep
28-Sep
27-Jul
$750
17-Aug
[email protected]
+1 856-761-4467
$1,065
$850
12-Jul
Patrick Magilligan
$1,150
lower by 8.4% year-on-year, as measured in dollar terms. Exports to the US, China’s largest
trade partner, dropped by 9.9%, while exports to the EU, the second largest, were down 4.4%.
For the first half year, imports decreased 10.2% while exports declined 7.7%, y/y. Because of the
recent weakness in the value of the yuan against the dollar, off 3% in the second quarter, June
exports were actually reported as marginally higher in local currency terms (+1.3%) and imports
only slightly lower (-2.3%). Depreciating commodity prices were also cited as a factor in the
sizable drop in import values.
Trade data in the second half will be affected by a further easing of the overall Chinese economy,
the uncertainties of EU demand in the aftermath of Brexit, US interest rate expectations and the
value of the yuan versus the dollar. Chinese growth in the second quarter was reported as a 6.7%
expansion to GDP, matching that of the March period and just above the government minimum
growth target of 6.5%. China reported 6.9% growth in its GDP in 2015. It is widely expected that
the government will need to increase its stimulus measures in the second half of this year to
assure the 6.5% floor in GDP growth.
The most recent economic data from the National Bureau of Statistics show the Chinese
economy still struggling to grow with manufacturing PMI straddling the 50% level, while some
improvement in the service sector PMI was noted in June. Industrial production also remained
steady in June, but with investments in fixed assets dipping lower.
The IMF released its most recent assessment of world output last week with another cut to its
projection of global growth to 3.1% in 2016, down by 0.1%, and to 3.4% in 2017, citing the
impact of Brexit. The US growth forecast was reduced to 2.2% for this year but rising to 2.5%
next year, with Japan expected to see 0.3% and 0.1% expansions in 2016 and 2017, respectively.
Following Brexit, the EU is expected to ease to 1.6% and 1.4% growth this year and next.
China’s slowing is predicted to continue with 6.6% growth in 2016 and 6.2% next year.
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Wage negotiations with the platinum producers in South Africa have begun with AMCU, having
the largest representation at the big three, Anglo, Impala and Lonmin, demanding a minimum
monthly wage of R12,500 for entry level workers and a 15% raise for the remaining workforce.
Other housing and living allowances are part of its demands. AMCU settled a three-year pact in
2014 following a horrific five-month strike action that included R1,000 per month for each of the
first two years and R950 in the third. The National Union of Mineworkers is setting its initial
demand at Anglo Platinum for a 20% wage hike for a two-year period.
Separately, the NUM is currently in dispute with Sibanye Gold following its decision to layoff
1,702 miners at its Cooke 4 mine near Johannesburg. Sibanye filed a Section 189 notice to begin
a 60-day period of consultation with unions and workers to discuss alternatives. The company
wants to close the loss making gold mine as “operations have continued to fall short of
production targets and losses have continued to accumulate”, but intends on maintaining the
Cooke 1, 2 and 3 mines.
EU new car registrations rose again in June, up 6.9% over the comparable period of 2015 to
1,459,508 vehicles, and were substantially better than the 1,288,220 vehicle sales in May. It was
the highest monthly total for new registrations in the month of June since 2007. For the first half
of 2016, new registrations were higher by 9.4% over the same period of last year to 7.8 million
vehicles, on pace to top the total sales of 13.71 million vehicles recorded in 2015. The ACEA has
forecast 5% growth for calendar 2016 with passenger cars sales exceeding 15 million units.
All of the markets across the EU posted positive growth in new registrations in the first sixmonth period with the exception of the Netherlands (-3.6%), the seventh largest in terms of new
car sales. For the first half, double-digit gains were posted in Italy (+19.2%) and Spain (+12.5%),
followed by better sales in France (+8.3%), Germany (+7.1%) and the UK (+3.2%). The fallout
from Britain’s decision to exit from the EU is anticipated to have a negative impact on second
half car sales, but its magnitude is unknown. Britain was one of only four countries in the EU
that reported a decline in June with sales off marginally, 0.8% y/y.
Anglo Platinum, the world’s largest platinum producer, reported a marginal 0.9% increase yearon-year in group attributable platinum production in its second quarter to June to 586,000
ounces, and was 3.4% above March results of 567,000 ounces. However, refined platinum
production climbed 33.3% over the comparable period of last year and nearly-double refined
output in the March quarter as the backlog of unrefined concentrates was processed. Refined
platinum for the first quarter fell substantially, down 51.8% year-on-year and 65% q/q, on a
planned inventory count at the Precious Metals Refinery (PMR) but which was further impacted
by a Section 54 safety-related closure that combined affected production for nearly 1 1/2 months.
The balance of the unprocessed material will be brought to market through the second half.
Attributable platinum production at Anglo in the first half of fiscal 2016 of 1.315 million ounces
was 19% higher than the 1.105 million ounces recorded in the same period of last year.
Management had offered its earlier guidance for fiscal 2016 of 2.3 to 2.4 million ounces of
platinum.
At Amandelbult, Anglo’s largest contributor, output rose only 0.8% to 106,200 ounces as a
Section 54 safety-related work stoppage and lower grades affected production. Production at the
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open pit Mogalakwena mine declined by 3.3% y/y to 98,800 ounces of platinum as grades fell
back to normalized levels despite a rise in tonnage. Production from the Rustenburg mines
dropped 11.9% to 98,300 ounces on a Section 54 closure and difficult ground conditions. Union
mine saw production jump 31.2% to 41,200 ounces of platinum on significantly higher tonnage
from improved underground efficiencies. The smaller Unki mine in Zimbabwe posted an 11.9%
increase in platinum outturn to 17,800 ounces on better tonnage and grade. Joint venture
operations recorded a 12.6% rise in platinum outturn in the quarter to 66,800 ounces on
improved production from Mototolo, Modikwa, BRPM and Kroondal.
Palladium
Price July 25, 2016): $682
1-week change: +$45.00 (+7.1%)
1-year change: +$59.00 (+9.5%)
Palladium prices outperformed the precious metals complex over the past month gaining 30% in
value to an eight-month high of $688 an ounce, up from a recent low of $528 an ounce that
followed the Brexit announcement. It could also be argued that palladium simply caught up with
the rally in gold and silver which had begun earlier in June and in platinum later in June. The
metal may also be a beneficiary of concerns for labor disruptions surrounding the present wage
negotiations underway in the South African PGM sector. South Africa produces around 40% of
the world’s primary supplies of palladium each year. The release of continued solid gains in
Chinese car sales in the first half of 2016 likely also helped bolster the current rally in the
palladium price.
It is also evident at times that palladium prices are influenced by the direction of equity prices.
The relationship of palladium to stock values is intuitive: a positive outlook for economic growth
over the near- to intermediate-term should be reflected in an index of equity values, and a
stronger economy should also equate to improving commercial and consumer demand for
industrial materials such as palladium. Of course, some of the stock market’s recent gains can be
ascribed to historically low borrowing and margin costs with more investors assuming greater
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levels of risk to chase higher yields. Nevertheless, the correlation coefficient of palladium to the
S&P 500 since the start of July is a strong .86, with 1.0 being a perfect correlation. However, the
relationship has been less well-defined in the longer-term with a one-year coefficient of only
0.44, suggesting that this association is only valid at times. For comparison, the correlation
coefficient of palladium to the platinum price since July 1st was 0.58, about the same as the oneyear coefficient of 0.59. Examining the S&P to palladium prices from an alternative perspective,
the ratio of the former to the latter has averaged a multiple of 3.5 over the past 12-months, as
illustrated in the chart below.
Palladium prices have outperformed the complex over the past several weeks. But as other
precious metals have eased lower along with a further strengthening in the US dollar, some
retracement of recent sharp gains in palladium may be anticipated with near-term values
potentially falling to $630-$640 an ounce initially.
Total Chinese vehicle sales rose 13.3% in June year-on-year to 2.55 million vehicles, and were
up from the 2.09 million recorded in May, according to the China Association of Automotive
Manufacturers (CAAN). Passenger car sales saw an even higher 17.7% increase in sales for
June, when compared to the same period of last year, to 1.8 million units (1.76 million units in
May). Analysts cited increased discounts and rebates being offered as inventory levels grew.
Sales of SUVs and crossovers continue to outpace the market with a 41% y/y rise June for the
sector. For the first six months of 2016, total vehicle sales including commercial jumped 8.2% to
12.8 million vehicles versus 11.8 in the same period of 2015, while passenger car sales were
higher by 9.2% at 11 million units.
The 5% tax cut on smaller-engine cars that was implemented across China at the end of 2015 is
due to expire in December. Buying ahead of the expiration date could act to maintain solid
growth in vehicle sales through the second half. The effect on 2017 sales figures could be
negative, however, as some portion of future sales are brought forward into this year to take
advantage of the tax benefit. CAAN’s earlier projection of a 6% growth for 2016 with total sales
of 26 million units, up from the 24.60 million vehicles reported in 2015, appears achievable at
least at this point in the year.
It was reported last week that the US Department of Justice and the Securities and Exchange
Commission had begun a criminal investigation into Fiat Chrysler alleging that the company had
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been inflating the volume of its vehicle sales. The company has been charged with conspiring
with local dealers to falsely report selling more vehicles than actually sold to customers for a
cash payment to the dealership account. The phony sales transactions were then reversed at the
start of the next month. The number of fraudulently reported cars and trucks would likely be
immaterial if considered in the volume of PGMs required for manufacture; the total of altered
sales will likely number in the thousands. Fiat Chrysler sold 1.13 million vehicles in the US in
the first half of 2016, 7% above sales in the comparable period of last year.
Vale reported a 7.1% decline in PGM production year-on-year for its second quarter through
June to 144,000 ounces, but was only marginally below that of the March period of 146,000
ounces. The company produced 95,000 ounces of palladium (-12.8%) and 49,000 ounces of
platinum (+6.5%) from its Sudbury, Ontario operations in the June quarter versus the same
period of last year. When measured against the March period, palladium outturn dropped 5.0%
while platinum gained 6.5% in June sequentially.
For the first half year through June, Vale produced 291,000 ounces of PGMs, in line with the
294,000 ounces in 2015, and on pace to possibly reach 600,000 ounces for the year, barring any
production issues at Sudbury. Vale produced only 495,000 ounces of PGMs in fiscal 2015
primarily due to issues in its smelting operations which included closure of the Sudbury mill for
a time.
Rhodium
Price (July 25, 2016): $650.00
1-week change: unch
1-year change: -$200.00 (-23.5%)
Rhodium prices continue to disappoint. Trading in the metal has been caught in a narrow
sideways pattern bounded on the upside by $650 to $670 an ounce and supported below at $620
to $640 an ounce. The Johnson Matthey Base Price for rhodium has remained unchanged at $650
an ounce thus far throughout the month of July. Reports of increased industrial demand over the
past two weeks made little difference to the price as there appears to be more than sufficient
stock of metal for sale.
A stated previously, the rhodium price traded below $700 an ounce for more than four years
between late-1994 and the end of 1998 before briefly turning higher. Expectations for an
increase in demand for rhodium required for the implementation of more stringent emissions
standards for the control of nitrogen oxides with Euro 6b across Europe this year and next, and
then Euro 6d, Tier 3 standards in the US and China 5 all in 2017, have yet to be reflected in the
price of the metal. Or perhaps without the expanded consumption levels from these tighter
regulations, rhodium prices would already be trading closer to $500 an ounce and not supported
above $600 an ounce. Fears of even the most remote risk of a shortage of rhodium and an
unlikely return to the brief break above $10,000 an ounce for rhodium set in mid-2008 have
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resulted in a thrifting out of as much of the metal as possible in the manufacture of the catalytic
converter in recent years.
Gold
Price (July 25, 2016): $1,313.15
1-week change: -$21.55 (-1.6%)
1-year change: +$213.50 (+19.4%)
Gold prices have trended lower over the past two-week period after rallying to a 2 ½-year high of
$1,375 an ounce on a surge in safe haven investor interest that trailed the decision by the UK to
exit the European Union. At current levels, the metal has gained a still impressive 26% since the
cyclical low of $1,046 an ounce was recorded in December of 2015. Gold did respond with a
brief intraday move higher in reaction to the short-lived coup in Turkey, but as President
Erdogan quickly recovered control from his military gold eased lower.
The metal has softened in reaction to a return of some stability in the global equity markets and
currency trade as the heightened volatility in the financial markets in the wake of the surprise
Brexit vote has begun to diminish. Most major stock markets have shown solid improvement
over the past month with increases on the Shanghai Composite (+5.6%), the Hang Seng (+8.6%),
and the Nikkei (+11.2%), while the Dow Jones (+6.7%) reached a new record high. Even the
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FTSE rose 9.7% over the past month, with 7% or more gains on the German and French bourses.
Currency markets also reported less volatility as the dollar remains relatively strong at $1.10/€;
the pound has retraced some of its recent losses from its low of near $1.28 back to $1.31/£ after
falling from $1.50/£ just prior to the Brexit vote.
Interest in a further accumulation of gold by speculative investors may have also ebbed as
expectations for additional stimulus measures from various central banks have not been met thus
far. The ECB decided to leave rates unchanged at last week’s meeting until the effects of Brexit
and the events in Turkey are better understood. The committee will meet again next month to
discuss the need for added stimulus measures. The Bank of Japan will meet this week to assess
the need to roll out additional easing. And improving US economic data have again raised the
specter of a second rate hike from the Fed, perhaps as early as the September meeting, increasing
concerns for gold longs. Reports of solid housing numbers, unemployment below 5% and steady
weekly initial unemployment claims of 250-260,000, and a rebound in stock values may allow
the Fed to justify a September rate increase. More clues will be made available following this
week’s FOMC meeting. US interest rates remain near record lows with the 10-year treasury
hovering near 1.6%, down from the 2.2% quoted in December when the Fed last acted.
Gold imports in India continue to decline as prices in rupee terms remain high. Imports for the
first six months through June were reported as 212 tons, nearly half of the 417 tons recorded in
2015; June imports slid to just 30 tons. Discounts in the retail market have risen as high as $100
an ounce below London according to local traders.
Following a nearly steady climb in the first half of 2016, ETF holdings in gold have seen some
liquidation in recent weeks. The SPDR Gold Trust, the largest gold ETF, reports current holdings
of 31.0 million ounces, down from a two-year high of 31.6 million ounces in early July, but still
up more than 50% from 20.7 million ounces at the beginning of the year. Non-commercial long
positions on the CME declined by 3% in the prior week to 366,871 contracts, while shorts
increased positions only marginally (0.4%).
Central bank gold demand for the first half year was mixed with modest net sales of 8.75 tons as
reported by the World Gold Council/Metals Focus. Russia was again the largest buyer of gold
with 66.9 tons in the year through June, followed by China which accumulated 46.03 tons and
Kazakhstan with 12.79 tons in the period. It was reported that Venezuela sold heavily in the first
half of 2016 losing 66.74 tons as falling crude prices have left the country in dire need of
revenue. Transfers of gold out of Turkey totaled 51.38 tons while Jordan sold 6.85 tons in the
half. In calendar 2015, central bank purchases of gold totaled 867.75 tons according to WGC, but
this amount was inflated by China’s report of accumulated purchases for the six-year period of
2009 through 2015 of 604.34 ounces. In addition, Russia took 206.33 tons of gold in 2015,
Kazakhstan 30.06 tons, Jordan 22.08 tons, while Venezuela sold 88.1 tons and Turkey lost 13.58
tons.
Sales of gold through the Central Bank Gold Agreement have been modest in recent years with
only 0.78 tons sold thus far in the 12-month period through September of this year in the Fourth
CBGA. Since September 2009, the start of the five year Third CBGA, only 207.3 tons of gold
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were sold out of an allowable 2,000 tons. The CBGA was established to limit gold sales from the
central banks of Europe to 400 tons per year.
It was also reported last week that Harmony Gold of South Africa entered into a hedge
agreement for some 20% of its next two years of production or 400,000 ounces of gold. The
company decided to lock-in a portion of production to take advantage of record rand prices for
gold. With the dramatic rise in the value of the metal thus far in 2016, more gold mining
companies could find it prudent to hedge a percentage of future production.
Newmont Mining, the world’s second largest gold producer, posted a 6.8% increase in its second
quarter results for fiscal 2016 with 1.285 million ounces of attributable gold production
compared to 1.203 million ounces in the same period of last year, and higher by 4.6% over that
of the March quarter. The company sold 1.279 million ounces of gold (+10.5%) in the June
period. For its first half year through June, Newmont has produced 2.491 million ounces, up 6%
over the 2.351 million ounces in 2015. Management has adjusted lower its earlier guidance for
fiscal 2016 to 4.7 to 5.0 million attributable ounces of gold, rising to 4.9 to 5.4 million ounces in
2017 and remaining stable at 4.5 to 5.0 million ounces through 2020.
Production at Newmont was boosted by the initial contribution from Cripple Creek & Victor
mine of 114,000 ounces of gold, and solid growth from Tanami, up 22.4% to 142,000 ounces,
Kalgoorlie, up 15.7% to 96,000 ounces, and Ahafo in Africa, up 21.6% to 90,000 ounces. The
company’s largest US mine at Carlin saw only a 2% gain y/y to 204,000 ounces. Yanacocha
mine reported a 27.8% drop in production to 156,000 ounces, while Phoenix (-13.5%), Twin
Creeks (-8.8%) and Boddington (-4.5%) also recorded lower output in the June period.
Expansion projects at Merian in Surinam, Long Canyon in Nevada and Tanami in Australia will
raise production over the next few years, offsetting expected declines at Yanacocha and the sale
of Waihi and Batu Hijau.
Silver
Price (July 25, 2016): $19.41
1-week change: -$0.31 (-1.6%)
1-year change: +$4.72 (+32.1%)
Silver prices have trended lower since the brief spike in value to a two-year high at $21.13 an
ounce earlier this month. A recovery in world equity markets, a steady and stronger dollar,
renewed concerns for a Fed rate hike and lower gold prices have taken some of the recent
speculative fervor from the silver market. It is important to remember that silver prices began
2016 at $14 an ounce and rose 50% in value to recent highs. Investment funds must have had
some trepidations in allocating additional capital to an asset that has already had such a
remarkable move in value in a relatively short period of time. Some profit taking was prudent.
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Holdings in the iShares Silver Trust, the largest silver ETF, remain firm with a reported 341.5
million ounces currently, 6% above holdings of 322.5 million ounces recorded at the start of the
year. Similarly, silver non-commercial longs on Comex as reported by the CFTC have been
steady at 120,839 contracts as of the 19th of July.
But if gold prices should slip below the $1,300 an ounce level, silver prices may be expected to
test $19 an ounce initially, a 10% correction from recent highs, and with a further fall back to the
$18 an ounce level possible with the continued stability in global financial markets.
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CFTC Commitment of Traders
Non-Commercial Positions as of July 19, 2016
(# of Contracts)
Longs
Change
Platinum
Palladium
Gold
Silver
59,008
16,557
366,871
120,839
4,771
1,557
-11,210
6,463
% of Tot.
Shorts
Change
% of Tot.
8.80%
10.38%
-2.96%
5.65%
11,615
6,265
80,960
26,449
-219
-696
342
-275
-1.85%
-10.00%
0.42%
-1.03%
Technical Levels
July 25, 2016
15-day MA
40-day MA
100-day MA
200-day MA
Platinum
Palladium
$1,078
$1,020
$1,006
$954
$627
$580
$576
$571
Gold
$1,340
$1,298
$1,270
$1,197
Silver
$20.00
$18.24
$17.00
$15.86
LME Metals - 3 Month Closing Prices (US$/ton)
July 25, 2016
Aluminum
Copper
Lead
Nickel
Tin
Zinc
$1,611
$4,920
$1,841
$10,420
$17,750
$2,245
1M
-0.4%
4.7%
6.4%
15.5%
3.5%
11.3%
'% Change Over Period
3M
-2.5%
-2.2%
2.8%
14.5%
1.7%
17.6%
1Y
-1.9%
-6.1%
7.1%
-7.8%
14.9%
14.8%
10
11
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Material contained in this report is based upon publicly available market data believed to be accurate
and reliable and is presented for informational purposes only. PMA assumes no warranty or liability for
its completeness, nor guarantees future market performance. Further, PMA assumes no liability for
direct or indirect loss or damage from the use of information contained in this report, or from any
unforeseen errors or omissions.
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