Alan's Finance Blog

Gold, Silver, Platinum…W.T.F.?

Brad Stafford here in place of Adam Hewison and I have a great new video for you. I’m sure many of you read that title and your mind went in the gutter, but today I’m going to show you a whole new meaning for this acronym and how it applies to gold, silver, and platinum.

These three markets have a lot of volume, government implications, and technicals lining up for potentially great trades. Gold makes a record high, then pulls back. Silver is inching towards an all-time high level and platinum is making people rethink their decision to go with a white gold wedding band.

Where do you stand in these markets and maybe more importantly, where should you stand?

Click here to find out what W.T.F. really stands for and what does it have to do with gold, silver, and platinum?

You’ve got to watch the video to find out.

http://www.ino.com/info/503/CD3336/&dp=0&l=0&campaignid=3

Brad Stafford
Director of Marketing
INO.com & MarketClub

Commodities Edge Higher on a Quiet Day

Crude oil rises to 72.15 in Asia Monday. However, trading volume is thin as Japan, US and Canada markets are closed on holidays today. Last Friday, Dow Jones Industrial Average climbed +4% to 9684.94 and S&P 500 rose +4.5% to 1071.49. Rallies in stock indices to 1-year high spurs interest in oil markets as investors anticipate recovery in energy market consumption.

Despite the improved sentiment, crude oil price will continue to gyrate within recent trading of 65-75 until concrete evidence of demand recovery is seen. Over the weekend, Kuwait’s oil minister Sheikh Ahmad al-Abdullah al-Sabah said that ‘oil prices between 60 and 80 are suitable for exporters and importers’. Judging from outcomes from recent OPEC meetings and comments from member countries, OPEC seems to be satisfied with current price level. The likelihood for further output cut is low in coming few months. In fact, rising spare capacity and rise in oil price have triggered some members to produce more than their quotas. The International Energy Agency estimated OPEC’s compliance has fallen to 62% in September, compared with 66% in August and over 80% in the first quarter.

Gold price has little change after plummeting -0.7% last Friday. Although currently recovers to 1051, the yellow metal may still have risk to decline on long liquidation and USD’s technical rebound. However, gold should resume its uptrend after consolidation. Global central banks’ diversification away from the dollar is expected to pressure USD further. At the same time, diversification would increase central bank’s purchase of gold.

Commitments of Traders

• Crude Oil: Net speculative long positions rebounded to 50006 contracts last week as oil price recovered. While staying below the peak of 62216 contracts 2 weeks ago, net longs in crude oil continued to hover around high level in 2009, suggesting traders were not much affected by stricter CFTC regulations
• Natural Gas: Net shorts contracted for the second consecutive week. Gas price has rebounded strongly in recent weeks but we worry that high gas price would delay demand recovery. Record high gas storage should continue pressure on the cash market which in turn forces the futures market to move lower
• Gold: Net speculative long positions reached record high of 239668 contracts. At long positions have become more stretched, we feel it more necessary for gold price to correct
• Silver: Net speculative long positions pulled back after rising for 7 weeks. Recent rally in silver have been simply an amplification of gold’s rise. Similar to gold, silver is prone to a correction before resuming the uptrend
• Platinum: Net long positions recovered to 17955 contracts

Source: Oil n Gold

Commodity Prices Remain Soft in Asia Monday

Although still trading above 65, crude oil’s near-term outlook remains weak as investors worry about energy consumption. Decline in stock prices in Asia market and rebound in USD exert additional pressure on commodities. Others in the energy complex extend further to the downside with RBOB gasoline and distillate trading at 1.61 and 1.67 respectively.

Stock markets in Asia drop Monday in response to the worse-than-expected US durable goods orders reported last week. Moreover, strength in Japanese yen against the dollar also weighs on Japanese stocks. The Nikkei 225 Stock Average slips -2.7% to 9985 as exports will be seriously affected by a stronger yen. Japanese yen rises to 88.5 against the dollar, the highest level in 8 months amid speculations that the Japanese government will not intervene appreciation on yen. Last week, Finance Minister Hirohisa Fujii said that he did not support a weak yen. Australia’s S&P/ASX 200 Index loses more than -1% while S. Korea’s KOSPI Index fell -0.8%.The MSCI Asia Pacific Index slides -1.7%.

Gold and other precious metals move sideways in Asia session. Although USD plunges against Japanese yen, it rebounds against other currencies. The greenback rises to 2-week high at 1.457 against euro and 0.86 against Australian dollar. Against British pound, the dollar surges to 1.579, a level not seen since May.

We have a light calendar today. Germany’s CPI probably contracted -0.2% mom in September after rising +0.2% a month ago. Subdued inflationary pressure may weigh on gold. Both ECB President Trichet and BOC Governor Carney will speak later today. We expect both of them will acknowledge recent positive development in the economy. However, recovery at current pace is not sufficient to call for an exit of easing monetary policies.

Commitments of Traders

• Crude Oil: Net speculative long positions jumped to 62216 contracts, the highest level since the first week of January 2009. After 3 consecutive weekly increases, we expect to see pullback in net long next week amid long liquidations as well as sharp fall in crude oil price
• Natural Gas: Net shorts dropped to 163.8K contracts as natural gas price rose during the week. Although gas price has risen strongly in contrast with others in the energy complex, we believe the strength is premature as inventory is approaching the record high level and there’s no concrete evidence in demand recovery
• Gold: Net speculative long positions rose for the 5th consecutive week and made a new record high at 236.7K last week. However, we saw the pace of increase has moderated and the stretched position has made gold price vulnerable for correction
• Silver: Similar to gold, net speculative long positions for silver rallied above 47K contracts. Our view that ‘silver’s outperformance among precious metals may cause a more serious price correction’ began to materialize as silver price has fallen more severely than gold in the current reversal
• Platinum: Net long positions soared to a new record level of 18.2K. Strong auto sales data in August also revived investors’ confidence on PGMs. However, renewed pessimism that September auto sales will get hammered after the ‘cash for clunkers’ program should weigh on the white metal

Source: Oil n Gold Report

Platinum’s Strength to be Boosted by Better Auto Sector Outlook

Platinum price rebounds to 1335 in European morning after plunging for 3 consecutive days. Technically, platinum’s outlook has turned more bullish after breaking the resistance of 1300 on September 11. That resistance level has now become support!

Similar to gold and silver, investment demand in platinum has been strong in recently months. According to CFTC, net speculative long positions in platinum futures have risen to a record high of 16521 contracts in the week ended September 15. According to ETF Securities, total platinum held by custodian has reached 355M oz, the highest level in more than a year, as of September 21. We worry that price will correct should investors sell what they have bought. In fact, such risk is higher in platinum than in gold. Investment demand in platinum is mostly by hedge funds and metal speculators who look for short-term profits as platinum does not possess the same safe haven appeal as gold.

However, we believe the improved demand/supply outlook in platinum should lend support to price in the medium- to long- term.

Auto-catalyst contributes 50% of demand for platinum. Therefore, outlook in auto sector is critical for platinum. After the disastrous first quarter, auto production and sales have started to recover in recent months with US’ recovery the most prominent. In Europe, production has also recovered after making a low in 1Q09. However, the risk is that the rebound may not continue as the government’s stimulus program ends. In fact, Europe is the most critical region affecting platinum. In 2008, Europe contributed 38% of world platinum demand and almost 40% of world’s auto production.

Gold price rebounds +1.3% to 1018 as USD resumes the decline. Against the euro, the greenback plunges to 1.48, the highest level since September 21. Against NZD, the dollar slides -1.1% after New Zealand surprisingly recorded current account surplus of NZD 0.12B in 2Q09.

Crude oil price also regains the 70 level amid strength in stock markets. In Asia, the MSCI Asia Pacific Index excluding Japan added +1% as the Asian Development Bank upgraded its economic forecasts in Asia to +3.9% in 2009, compared with a growth of +3.4% projected in March. In 2010, the growth projection is likewise upgraded to 6.4% from 6.0%. China is still expected to record the strongest growth as led by ‘aggressive monetary easing and the massive fiscal stimulus package’ by the Government. The nation’s economy is expected to grow by 8.2% in 2009 and 8.9% in 2010, up from the March forecast of 7% and 8% respectively.

In the UK, the FTSE 100 Index gains -1% to 5183. Germany’s DAX and France’s CAC 40 climb +1.4% and +1% respectively to 5751 and 3850.

Source: Oil N Gold Report

Crude Oil Retreats – Investors Need Evidence on Demand

Crude oil price trades narrowly with a soft tone in Asia Monday. Although we have received some stronger-than-expected economic data and the global environment seems to have turned more positive, all these factors have been priced in. Investors need evidence from the energy market to show that oil demand is recovery.

However, this may not be easy in September and October. Normally, September to October is the transitional period as the peak gasoline consumption period (driving season) has just passed while heating oil consumption remains sluggish (winter has not arrived yet). Refinery utilization is going to decline in coming weeks and crude inventory should increase. We expect oil price to trade lower from current price level until fresh supportive news is received.

Gold retreats to as low as 1000.5 as profit-taking continues and the dollar recovers after plunging to 1-year low against the euro last week. IMF’s executive board approved gold sales of 403.3 metric tons and stressed that the Fund will conduct the sales in a manner that does not disrupt the international gold market.

This is not new news as the IMF has announced its plan to sell gold and the amount has been set since April 2008. However, we do not rule out the possibility that the confirmation of sales would be used by some investors as an excuse to push gold lower.

According the IMF, any gold sales on the market would be ‘phased over time’ and in accordance with the Central Bank Gold Agreement. ‘Under this agreement, which was renewed in August, the participants announced ceilings on total sales of 400 tons annually, and 2,000 tons in total during the five years starting on September 27, 2009, and noted that the Fund’s sales can be accommodated under these ceilings’.

We have a light economic calendar today with market holiday in Japan. In US session, a report will probably show that leading indicators have risen for the 5th consecutive to 0.7% in August, after a gain of 0.6% a month ago, as driven by higher stock prices, supplier deliveries and building permits.

Commitments of Traders

• Crude Oil: Net speculative long positions rose to 45557 contracts, the highest level since June 2009. Open interest has also surged to 1.197M, representing an icrease of 19K and 1.17M contracts on weekly and monthly basis respectively. We expect pullback will be seen in the coming week as traders take profits and crude oil price has reached upper bound of recent trading range
• Natural Gas: Net shorts increased to 173.9K contracts despite jumps in natural gas price. As gas facilities have approached full storage but inventory continues to rise, we worry thst gas price will fall sharply in coming weeks
• Gold: Net speculative long positions made another record high at 235.6K last week. Gold price’s retreat after rising to1025.8 due to long liquidation may lead to reduction in net long positions in the coming week
• Silver: Net speculative long positions for silver rallied above 46.5K contracts. Silver’s outperformance among precious metals may cause a more serious price correction
• Platinum: Net long positions soared to a new record level of 16.5K as driven by broad-based rally in precious metal complex. Strong auto sales data in August also revived investors’ confidence on PGMs

Weekly Fundamental Outlook for Energies and Metals – Crude’s Rally Derailed from Fundamentals Again

Strength in stock markets and decline in USD were the major reasons for the rises in commodities. In the US, Dow Jones Industrial Average climbed +2.2% to settle at 9820 while S&P 500 Index surged +2.6% to 1068.3 as driven by better-than-expected housing market (housing starts), employment situation (jobless claims) and improvements in manufacturing activities (Empire State and Philly Fed Index).

The dollar weakened further with every rebound being treated an opportunity to sell as investors’ risk appetite increases. In the coming week, the FOMC meeting will be market’s focus. While the Fed will likely announce to keep its policy rate at 0-0.25% for an extended period of time, it may talk more about plans for exiting from the current stimulus policies.

Crude Oil

Crude oil price retreated to -0.6% to settle 72.04 Friday, the second consecutive day of fall as USD recovered after substantially weakened against major currencies in the past week. On weekly basis, the October contract reached 73.16 the highest and gained +4%. Recent rally in crude oil has been determined by movements in USD and stock markets, rather than fundamentals on the energy market.

US crude inventory declined -4.73 mmb, compared with consensus of -2.3 mmb, to 332.8 mmb in the week ended September 11. Although the draw was much higher than market anticipation, it was driven by robust refinery runs (Refinery runs declined slightly but remained strong at 86.9% of capacity) and reduction in US imports, rather than improvement in demand. In fact, weak demand has been indicated in higher-than-expected increase in gasoline and distillate stockpiles. Gasoline stockpile rose +0.55 mmb to 207.7 mmb while distillate stockpile gained +2.24 mmb to 167.8 mmb, the highest level since 1983.High refinery utilization but weak consumption contributed to the surge in fuel inventories.

Normally, refiners increase gasoline production ahead of and during driving season and then switch to heating oil production after the peak season. However, as distillate inventory remains at sky-high level, the transition will be delayed this year.

Weakness in distillate demand has been linked to industrial production. Although industrial production has picked up in July and August, it remains in multi-year low level. This is quite similar in the case for distillate.

All of EIA, IEA and OPEC’s September reports generally depicted a more optimistic outlook on global energy demand. However, a closer look at the supply side suggests that output growth will continue to exceed demand growth modestly in 2010. On average, the anticipated increase in demand was +0.91M bpd in 2010 from 2009 while total growth in non-OPEC supply and OPEC NGLs will be around +1.07M bpd. This means that there’s no need for any more growth in OPEC’s production in the coming year. This also suggests that although OPEC did not change production at September’s meeting, it may need to announce cuts in coming months.

Natural Gas

Natural gas rose +9.3% to 3.78 Friday although fundamentals in gas market remained weak. The futures climbed +28% this week, the biggest increase since the week ended October 20, 2006. We believe this was mainly technical rebound and gas price should continue to trade with high volatility.

Gas storage rose +66 bcf to 3458 bcf in the week ended September 11. Although the increase was less than market expectation of +80 bcf and the surplus to the 5-year average also have declined to 16% from 17% in the prior week, months of substantial increase in gas have made total inventory almost reach the maximum level in 2008.

Fundamentals remain weak in natural gas. Compared with the same period in previous years, storage of above 3450 bcf has been rare. There are still more weeks until the end of traditional injection season and almost 2 months away from the first winter draw, it’s hard to tell how the huge inventory will be disposed. In the current situation, we do not see any reason for gas price to strengthen further.

According to Baker Hughes, the number of gas rigs has risen 6 units to 705 units in the week ended September 18. Rebound in gas price probably encouraged production.

Precious Metals

The precious metal complex lost ground as USD rebounded from 1-year low against the euro. The benchmark contracts for gold, silver and platinum dropped -0.3%, -1.25 and -0.2% to 1010.3, 17.07 and 1338.2 respectively Friday. However, on weekly basis, the metals continued rising +0.4%, +2.2% and +1.4% correspondingly.

Gold price managed to close above 1000 for 6 consecutive days. We believe the strength was mainly driven by the sharp fall in dollar. During the period (Sep 11-Sep 18), the greenback has dipped -1% against the euro. In fact, the dollar index has already plunged -2.2%, since the beginning of the month.

In the coming week, we believe the yellow metal will consolidate with a range of 1000-1033.9 mainly due to profit-taking. Net speculative long positions made another record high of 235.6K contracts in the week ended September 15 after rising to 224.7K contracts in the prior week. Long liquidation is imminent in the short-term and this will inescapably drag gold price lower.

Inflation fears remerged as both of US’ CPI and PPI beat market expectation. The worry will linger for some time as global economic outlook improves. This, together with lower interest rates, should lend further support to the yellow metal in the medium- to long-term.

Silver’s outperformance over gold will likely cause a heavier correction in the white metal

Platinum has the best fundamental outlook within the complex. Signs of recovery in auto sector, continued robustness in investment demand as well as increase in jewelry demand in China will like push price higher.

Base Metals

Strong macro-economic environment continued to support base metals although, in the near-term, pullbacks will be seen as driven by stock builds in exchanges and reduction in China imports.

LME copper for 3-month delivery slid -3.3% to close at 6175 Friday. Over the week, the benchmark contract dropped in 3 out of 5 days and ended up at a loss of -1.2%. Copper inventory at LME warehouse has risen +2.9% to 327.7K metric tons last week. Inventory at the Shanghai Futures Exchange (SHFE) also soared +7% over the past week. These triggered concerns about demand as China, the world’s growth driver seemed to have halted stockpiling.

Risk Aversion Returns amid Trade Protectionism

Crude oil price extends last Friday’s weakness and slides to 68.5 in Asia Monday as driven by decline stock markets and rebound in USD. Recent rallies in commodity and stock markets have probably outpaced recovery. Increase in signs of trade protectionism reduces risk appetite and capitals are seen flowing back into USD and Japanese yen. However, we believe oil price should hold at 65 level and 60 will be a floor in the medium term as large exporters such as Saudi Arabia and UAE will reduce supplies to Asia should price reach that level.

Stocks in Asia plunges with the MSCI Asia Pacific Index losing -1.6%. In Japan, Nikkei 225 Stock Average slides -2.3% to 10209 as appreciation in Japanese yen curbs exports. On the data front, New Zealand’s retail sales unexpectedly plunged -0.5% mom in July (consensus: +0.6%) while June’s reading was revised down to -0.1%.

Worries were added after Joseph Stiglitz, said that the financial sector has been facing bigger risks than they were a year ago. The Noble prize-winning economist said that banks in the US and many other countries have become even bigger after Lehman’s collapse and this should cause severe impact to the world should any of them fails.

Concerning global economy, Stigiltz said that it’s ‘far from being out of woods’ and ‘we are going into an extended period of weak economy, of economic malaise’.

The US government announced placing tariffs starting at 35% on tire imports from China in order to protect US producers from increasing imports from China. The Ministry of Commerce in China strongly opposed the decision and stated that the US has violated rules of the WTO and has breached the commitments made by the US at the G-20 summit.

2 days after the White House’s decision, the Chinese government announced ‘anti-dumping and anti subsidies investigations’ into some automobile and chicken products originally produced in the US as Chinese manufacturers alleged the above products entered the country’s market with an ‘unfair competitor manner’ which harms domestic industries.

Protectionism hurts world trade and slows down the pace of global economic recovery. The news triggers risk aversion and the dollar rebounds to 1.454 against the euro, after plummeting to 9-month low last Friday.

Gold price retreats to 1005 after rising for 2 consecutive days as USD recovers. We believe the yellow will move sideways in coming few days before recent rally resumes.

Commitments of Traders

• Crude Oil: Net speculative long positions surged again to 33.1 K as oil price rose above 70. CFCT’s restriction apparently did not have much impact on investments.
• Natural Gas: Net shorts declined further to 168.6K. However, gas price should remain weak in the coming future due to huge gas storage
• Gold: Net speculative long positions jumped to record high of 224.6K last week. Further rise is anticipated in the coming week as gold price remains strong
• Silver: Net speculative long positions for silver rallied above 40.9K contracts. Silver price has outperformed gold as global economic recovery boosts demand for industrial metals
• Platinum: Net long positions soared to record level of 15.1K as driven by broad-based rally in precious metal complex. Strong auto sales data in August also revived investors’ confidence on PGMs

Weekly Fundamental Outlook for Energies and Metals – Consolidation in Crude Oil will Continue in Coming Months

Commodity prices rose modestly last week amid weakness in USD. Reuters/Jefferies CRB Index added +1.4% while USD Index plunged almost -2% to 76.6, the lowest close in a year. Commodities normally trade in opposite direction with the dollar.

The generation-low interest rate in the US (Fed funds rate: 0-0.25%) has caused massive selloff in USD. Against the euro, the greenback plunged for 4 out of 5 trading days and closed -1.9% lower at 1.457, the lowest level in 9 months, for the week. Against the pound, USD also slid -1.6% to 1.6655, a 1-month low, last week.

There were 3 central bank meetings last week. All of the RBNZ, BOE and BOC left interest rates unchanged at 2.5%, 0.5% and 0.25% respectively during the meetings but policymakers indicated brighter economic outlooks for 2H09 and 2010.

In the coming week, the BOJ and SNB will decide on rates. We believe both banks will leave policy rates unchanged at 0.1% and 0.25% respectively.

Crude Oil

After spiking to 72.9, crude oil tumbled to as low as 68.8. The October contract plunged -3.9% to settle at 69.12 Friday, leaving this week’s gain to +1.2% only. The black gold’s decline Friday was accompanied by the dollar’s weakness and strong US economic data. These were in contrary to the usual inverse relationship between commodities and USD.

Crude oil started the week with strong rally but ended it with a slump. We believe the reversal was not only due to profit-taking but also a delayed reaction to the industry news/data released during the week.

Both the industry-sponsored API and the US Energy Department reported huge draw in crude oil inventory but surprising increase in gasoline and distillate stockpiles. Although decline in crude inventory positive, surges in fuel storage should have more than offset bullishness.

Gasoline stockpile rose +2.1 mmb last week to 207 mmb. This had not only come in contrary to consensus of a draw but also halted the 6 consecutive weekly declines. In fact, we believe further increase in stockpile will follow in coming months due to the normal shoulder season in the 4th quarter. Distillate stockpile gained for the 3rd consecutive week. Since 3Q09, inventory has risen for 8 out of 10 weeks. As winter comes, demand for heating oil should increase but this may not be the case this year. Meteorologists suggested the possibility of El Nino which may bring a warmer-than-expected winter in the Northern Hemisphere this year.

OPEC concluded September’s meeting and announced to keep production quotas unchanged Wednesday. Apparently, the meeting was a non-event as the outcome was widely anticipated. However, comments from member countries, especially Saudi Arabia, suggested OPEC’s goal to tighten stock level has been dropped.

After the meeting, Saudi Arabia’s oil minister Ali al-Naimi commented that ‘we are enjoying a good, fair price’ and ‘Inventories are irrelevant, they can be 70 days… It has no bearing on price’. This was compared with the comment in May that industry-held stockpiles in developed nations needed to be brought down to the equivalent of about 52 to 54 days worth of consumption, from 62 days. Concerning compliance, Ali al-Naimi did not see the need to put pressure on overproducing members as ‘people are complying anyway, 70% compliance is great’.

Obviously, the members were satisfied with the current price level and Saudi Arabia explicitly mentioned that the current 68-73 level is ‘going to be there for a while’. Giving the OPEC’s significance in affect oil price, we do believe that the current price level can hold in the medium term. The members will increase output should oil price increases. When price drops, say below 60, large producers such as Saudi can reduce supplies, thereby limiting the fall. In this way, crude oil price will consolidate for some time, given global economy improves in a gradual but uncertain manner.

Natural Gas

In tandem with weakness in the energy complex, natural gas sank -8.5% Friday, paring +15% gains made the previous day, after jumping to as high as 3.42. Gas price rose +9.2% on weekly basis, the biggest jump since May.

Thursday’s rally was driven by US Energy Department’s report which showed that working gas in storage increased by +69 bcf, lower than consensus of +72 bcf, to 3392 bcf in the week ended September 4.Storage was currently +17.4% above 5-year average, also narrowed from +19% in prior weeks.

A week’s data will definitely not alter the bearish gas outlook. In fact, gas supplies remained +495 bcf higher than last year and +503 bcf higher that 5-year average. It’s very likely that US gas storage will exceed all-time high of 3565 bcf made in October 2007.

According to Baker Hughes, oil rig counts reduced to 699 units as of September 11 from 701 in the previous week. This was the first decline after 7 weeks’ increase. Producers scaled back output as gas price is expected to remain low for the rest of the year.

Precious Metals

Gold closed above 1000 for the first time since February last Friday. The yellow metal rallied to as high as 1013.7 before settling at 1006.4, adding +1% during the week. The inverse correlation between gold and USD has increased to -0.8 in recent weeks after falling to -0.5 in mid-August, suggesting dollar’s weakness has contributed to gold’s rally. Central banks have been looking for diversifications away from the dollar. Russia’s central bank’s deputy Chairman Alexei Ulyukayev said that the nation’s gold and foreign currency reserve, the world’s third largest and at the level of around $400B, currently holds 47% in USD, 40% in euro and 10% in GBP. While the amount will remain largely the same by year-end, the composition can be changed and 2-3 more currencies will be added. With USD is at risk of depreciation and inflation expectations loom should the massive stimulus measures unwind, we believe gold would be an attractive investments for the government.

Profit-taking was seen in silver after the metal briefly touched 17 (highest: 17.02) Friday. The benchmark contract was flat during the day but managed to gain +2.5% over the week.

Platinum jumped +2.5% to close at 1322.5, the highest level in 12 months, Friday. Over the week, the benchmark contract gained +4.4%. The noble metal rose for 7 out of 9 trading days in September as driven by recovery in the auto sector.

While the market worried that auto sector will turn weak again as the cash rebate program ended, data suggested that the car industry is recovering. In fact, auto sector is the one that drives the industrial sector out of recession since 2H09. Car makers have become more confident and have expansion plans in the coming year with focus on emerging markets. For instance, Ford Motor said that it will start production in small car in India in 2010 while Harley-Davidson said it will start sales in India next year. Hyundai Motor said that it will raise the annual production capacity at its China plant to 600K from 500K beginning 2010.

Base Metals

The base metal complex moved in a consolidative mode last week. Although macroeconomic data continued to show improvements and China data remained strong, drops in preliminary trade data further suggested China stockpiling has completed for now.

LME lead surged to 2517 earlier in the week as investors worried that smelter closure in China would affect supplies. However, massive selling pressure followed and the metal dived to 2065, losing -10.4% over the week. Zinc lost -3.1% in the week. Traders who long zinc/lead pair trade as we recommended last week (Sep 4) should book in profits.

China’s imports of metal declined for the second month in August. Imports for copper dropped to 325K metric tons, down -20% from a month ago. The July imports decreased 15% from the peak level in June. We believe further decrease will be seen, not only for copper but also other industrial metals, in coming months as China’s RMB 4 trillion stimulus plan has come to an end while the country’s current phase of strategic stockpiling has been completed.

Platinum Stays Firm As August Car Sales Jumped

Platinum price remains firm after surging +2.4% Tuesday. Currently trading at 1290, the October contract attempts to make a new 3-month high above 1304 as spurred by strength in the precious metal complex as well as jumps in auto sales in both the US and China.

According to the China Association of Automobile Manufacturers, sales of passenger cars rose +90.2% yoy to 858K units in August. Together with 280K sales in commercial vehicles, total car sales in China surged +81.7% yoy to 1.14M units during the month. According to the organization, this is the 6th consecutive month that auto sales in China have reached 1M units. The outstanding result was attributed to tax reduction and subsidies provided by the government and signaled the worst of the economic slowdown has been over.

Released earlier, US light vehicles sales rose +25.45 mom and +4% yoy to 14.1M annualized in August as driven by the government’s cash rebate program.

Autocatalyst accounts for around 50% of platinum demand. Therefore, the global auto sector outlook is an important factor determining platinum price.

On the supply side, the hottest topic is strikes in South African mines. According to Impala, 50K oz of platinum production was lost after a 12-day strike at Rustenburg mine and a 5-day stock at the Marula mine. The National Union of Mineworkers began labor action on August 25 as workers and the company could not agree on a pay rise scheme. After negotiations between the 2 parties, workers agreed to return to work on September 8 and accepted the offer ‘in principal’.

While the issue seems to be over in Impala, the union remains undecided on Anglo Platinum’s offer. The world’s largest platinum producer offers a pay rise to 9-10% with minimum pay increasing to 4500 rand in the second year of the agreement.

Gold retreats to 994 after making an 18-month high yesterday. The precious metal has entered overbought territory after rallying for several days and investors prefer booking in gains for the moment. USD’ recovery also adds pressure to gold.

Crude oil remains stable at 71 in European morning. Today’s focus in on OPEC’s meeting as well as API’s inventory report after market close. The market anticipates another week of crude draw.