Why have platinum prices increased?

One week ago a 5-month strike by platinum miners was declared over with miners returning to work after accepting a wage deal. During that 5-month period platinum prices ended level at $1,457 per oz. The muted response to the loss of output due to high global stockpiles as producers and consumers stocked up prior to the beginning of the strike. Now platinum prices, far from falling with market participants relieved that the strike has finished hit a 10-month high yesterday (Tuesday 1 July) of $1,511 per oz, up almost 4% over the past week. What’s going on?

Related article: Global stockpile weighs on platinum prices despite strike

Despite the end of the strike there are concerns that the endemic problems highlighted by the platinum strike are not going to go away and that consolidation among the South Africa producers was “inevitable”  - the likely result being more labour unrest. These fears resurfaced with a vengeance after members of South Africa’s largest union NUMSA said members could down tools in a wildcat strike at state-power utility Eskom, while more than 220,000 South African engineering and metal workers launched a strike. An unexpected increase in US car sales in June also bolstered investor interest in platinum. The metal widely used in catalytic converters accounts for 38% of platinum demand.

Another factor behind the rise in the platinum price has been renewed conflict between Ukraine and pro-Russian separatists. The fighting renewed concerns that Russia’s exports of platinum could be disrupted. The European Union has threatened to impose a third round of sanctions against Moscow unless Russia uses its influence to end the violence. Russia is the world’s second-largest producer of platinum.

Finally, with gold prices at a 3-month high on geopolitical concerns platinum has also seen increased demand as a safe haven and hedge against uncertainty.

Related article: Platinum prices to average $1,850 per oz in 2015 – HSBC

Soybean prices dive after US supply report

Soybean prices plunged over 5% yesterday (30 June) to $11.57 per bushel after US Department of Agriculture data showing that farmers had planted an estimated 84.84 million acres, up 11% compared with last year and a record amount of land. According to the USDA planting of soybeans was 92% complete by mid-June, well ahead of last year, when wet weather delayed planting in much of the country. With soybean prices more favorable than corn prices going into the planting season, agricultural producers planted less corn this year.

Meanwhile, soybean stocks fell by 7% from a year earlier to 405 million bushels, higher than market analysts had expected who projected soybean stocks would fall to 387 million bushels, the lowest since 1977. Soybean stocks have been declining amid rising demand by US crushers, while demand for feed from livestock has been tempered by the deadly PED virus that has swept through the swine population.

Adding an extra level of uncertainty, US imports of soybeans are thought to be playing an unusually large role at the moment, with volumes expected to hit a record high in 2013-14 as the US seeks to replenish its oversold domestic supplies. The monthly Wasde crop report, unveiled by the USDA on 11 July is likely to clarify whether the higher-than-expected stocks data were down to strong imports or not.

With so much uncertainty going into an important part of the US growing season it is perhaps no wonder that this data has such a significant impact on the price. As the chart below shows traders typically underestimate stock levels going into this period. Soybean prices, now down over 25% since the start of June could see further sharp falls through July if history is any guide with prices bottoming out around October.

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The half time score for commodity prices in 2014

As the World Cup approaches half-time we take a look at whats been happening to commodity markets as the first half of 2014 comes to a close. The key source of disappointment (at least from the point of view of investors and producers) are commodities related to the production of steel with coking coal and iron ore down 22% and 28% respectively on high Chinese inventories, concerns over rising supply and concern over the crackdown on commodity financing by the authorities in China. In contrast the star performers have been nickel and coffee, up by 36% and 60% since the start of the year on Indonesia’s decision to restrict exports and drought in the major coffee producer Brazil.

What is the outlook for the second half of 2014? According to Goldman Sachs energy, agricultural and precious metal prices are all likely to weaken over the next six to twelve months as concern about Iraqi supplies wanes, rising agricultural inventories weigh on soft commodities and higher real interest rates reduce demand for precious metals. But who are likely to be the star performers in the second half? It could be a case of mean reversion with bulk commodities related to the steel industry bottoming out and rising during the rest of 2014. Iron ore prices may be supported as higher-cost Chinese mines close amid the recent slump in prices combined with increased optimism over Chinese demand. According to Citigroup the commodity may find a floor at $90 a ton, a level that may put more than a quarter of Chinese capacity out of business, spurring production cuts at mines outside the country and providing the basis for some rebound in prices.

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Source: ABN Amro

Related article: Chinese demand key to commodity prices in 2014