Silver correction drags metals down

In the Lead: “Back on the Roller-Coaster”

Platinum dropped $12 on the open while palladium eased by $4. The former was quoted at $1,769.00 while the latter showed a bid indication at $746.00 the ounce. Rhodium was unchanged after having bounced back by $30 to the $1,910.00 per ounce bid-side quote. Picking up on yesterday’s theme of deteriorating fundamentals in the noble metals’ niche, traders at Japan’s metals giant Tanaka Kikinzoku Kogyo K.K. projected that the losses in auto production in the wake of their country’s worst ever temblor might result in a surplus of platinum of as much as five metric tonnes this year.

That tonnage of higher supply than demand compares unfavorably with last year’s overhang of only 600 kilograms for the noble metal. Such a ballooning in supply could impact the hitherto robust price advances in the metal on the charts. Platinum has gained 18 percent in 2010 and palladium vaulted 71% higher. Japan still represents a source of demand as high as 15% of the total global tally in platinum. As a result of the recent developments in Japan, Bank of America Merrill Lynch (the most accurate forecaster for platinum over the past two years) has scaled back its average annual price forecast for platinum to $1,838.00 from the $2,000 level for the current year.

On the other hand, palladium could still remain in a deficit situation this year, despite the fall-off in Japanese autocatalyst-related demand. Albeit this year’s shortage might only amount to perhaps seven or eight metric tonnes as compared to last year’s more than fifteen tonne deficit, the market’s overall balance still offers some support for prices in the nearby lower price channels on the charts. If Chinese jewellery demand, ETF acquisitions were not slowing and if Russia did not come to market with the roughly one million ounces of the metal with which it did in 2010, the situation might be a tad different. We noted yesterday that palladium-based ETFs have seen a leakage in balances of about 42,000 ounces in the current year.

Some of that situation was apparently reversed during the month of April. Analysts at StandardBank (SA) noted that Chinese palladium demand improved last month, as the country imported 22,923 ounces of the metal –some 5,000 more than it had in March. To be fair, there is a huge divergence in what Swiss customs versus Chinese customs data reports are for such exports/imports. In fact, Chinese customs figures show a 44% decline in month-on-month imports for palladium.

Over in the US, palladium demand also appears to have ameliorated last month with net imports of 124,880 ounces of the metal. Some 24,228 ounces were possibly added to ETF holdings and that may have reversed the aforementioned shrinking trend for such balances in the current year somewhat. Thus, the StandardBank team envisions decent support for platinum and for palladium at the price zones that are found near the $1,700 and $700 levels respectively, while still targeting $1,900 and $950 for possible peaks later in the year for the duo.

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