Platinum prices near pre-VW scandal levels

The announcement on 18th September that the US Environmental Protection Agency had issued a Notice of Violation of the Clean Air Act against German car maker VW for misleading emissions test with their diesel cars resulted in the price of platinum dropping by almost 10% over the next 10 days to $900 per oz. Platinum is used to make catalytic converters for diesel cars, so investors worried that the scandal could hasten the decline in diesel use and in turn demand for the precious metal.

Since the start of October platinum prices have rebounded to almost $950 per oz, just $10 per oz lower than the metal was traded at just days before news of the scandal broke. The impact of the scandal might not be as bad as feared, certainly for platinum demand. Indeed, lower platinum prices could trigger a swing back to platinum for gasoline auto-catalysis, which is currently largely the preserve of palladium, another platinum-group metal (PGM).

read more

Dairy prices up 63% since August

Dairy prices on New Zealand’s Global Dairy Trade are up by almost two-thirds since August. Prices are now at their highest level since March due to lower milk production, as low prices and dry conditions blunt output growth.

Developments in New Zealand’s dairy sector sets the trend for milk and dairy prices globally since the country is the single largest milk exporter.

Despite the sharp rebound, prices remain almost 60% down on levels last seen just 18 months ago. Then a combination of soaring Chinese demand for milk powder to stockpile and drought in New Zealand kept dairy prices high.

read more

The cure for low prices is low prices and (lots of) time

“The cure for low prices is low prices”

How many times have you heard that in the media over the past few months? Many commentators point to announcements of closures to mines in Zambia and oil drilling in the US as evidence that the market for copper, oil and other commodities is turning and that prices will soon resume their upward trajectory.

michaelvines / Foter / CC BY

In theory low commodity prices should result in lower supply, or at least a slowdown in growth as commodity producers find it uneconomical to keep a mine or an oil well producing. Meanwhile, consumers should start to demand more of a commodity whose price has fallen. In reality though it can take quite a long time for consumers and producers to react to pricing signals with demand and supply for commodities very price inelastic.

read more