Proposed ETFs Juice PGM Market

Dovetailing with the recent rebound in base metals, platinum and palladium prices posted six-month highs during the holiday-shortened, fourteenth trading week of the year. Since New Year’s Eve, platinum prices have soared 33%, palladium is up 28%, silver has gained 14%, while gold has lagged with only a 1.8% rise.

• Some of the excitement comes from London-based ETF Securities, and its filing for two exchange-traded funds to be traded on the New York Stock Exchange, with one backed by physical platinum and the other by palladium. No date has been set for the ETFs’ launch.

These two would be the first-ever platinum or palladium ETFs traded on a U. S. exchange, though platinum exchange-traded notes (ETNs) are already available in the U. S., and there are other offshore platinum and palladium ETFs.

Hopes are buoyant that the new U. S. platinum and palladium ETFs will prove as successful as the U. S. gold ETFs, which also started late off the mark but quickly grew to account for 70% of all gold held worldwide in ETFs, simultaneously driving up physical gold demand and prices to all-time record levels.

• Developments in Asia were kind to platinum and palladium, too. Car sales in China are surprisingly resilient during the global recession, with passenger-vehicles sales up 10% in March to a record 772,400, which can only support demand prospects for platinum group metals (PGMs) in autocatalysts.

In recent months, China has surpassed the U. S. in total passenger-car sales, though comparing automobile categories between countries is difficult. Of note, minivan sales in China are up 40% in response to government subsidies totalling 5 billion yuan that are designed to help rural residents buy vans and light trucks. In Japan, the government unveiled a record 15.4-trillion-yen (US$153-billion) stimulus package that should support the nation’s major automakers in their manufacture of PGM-consuming cars and trucks.

• In Russia, meanwhile, the RTS exchange announced it will launch trading in platinum and palladium futures contracts from April 15. The contracts will initially be for three and six months, and will be settled in cash based on the morning London fix.

The RTS now trades 48 contracts, including 31 futures and 17 options on oil, gas, gold, silver, sugar, shares of Russian companies, bonds, interest rates, currency and the RTS index.

• GFMS released its full Gold Survey 2009, and predicted that gold prices could see some near-term softening in the face of record amounts of gold scrap coming into the market, which tallied 39.2 million oz. of scrap supply in 2008 compared with 30.8 million oz. the previous year.

The flood of scrap almost matched the year-over-year declines in gold production (2 million oz. decrease) and official sector sales (7.7 million oz. decrease).

Jewelry demand, not surprisingly, suffered from the double whammy of high gold prices and global recession, and saw a 10% drop to 69.4 million oz. gold in 2008.

While concerned that the gold market is overly dependent on investment demand (the only kind of demand that’s growing these days), GFMS remains bullish on gold in the longer term, for all the usual reasons: investors of all stripes around the world are becoming increasingly worried about the inflationary consequences of governments’ and central banks’ fiscal and monetary policies.

In particular, the non-partisan U. S. Congressional Budget Office estimates the U. S. president’s budget proposals will result in a US$1.8-trillion deficit this fiscal year followed by US$9.3 trillion from 2010-19.

• Rumours abounded that BHP Billiton was preparing a bid for Teck, driving Teck B shares above the $10-mark on heavy trading. Long-suffering Teck shareholders have been greeted with a string of good news events of late, from this takeover talk to higher copper prices and better-than-expected settling of metallurgical coal prices at about US$125 per tonne.

Teck also unloaded, for US$101 million, its 5.6 million shares in Kinross Gold obtained as part of the sale to Kinross of its stake in the Lobo Marte gold asset in Chile.

But let’s not get carried away just yet: with a US$5.3-billion bridge loan due October 2009, Teck’s financial status is still precarious, and far more substantive deals are likely on their way soon.

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