Palladium surge raises substitution queries again
08:58 a.m. Mar 11, 1998 Eastern
By Patrick Chalmers
infoseek.com
LONDON, March 11 (Reuters) - Palladium fixed at fresh 18-year highs on
Wednesday, buoyed by continuing fears about delays in supplies from
Russia, raising questions again about whether it is a metal consumers
can rely on.
Palladium fixed at $256.00 an ounce, up on Tuesday afternoon's $247.50
and the $248.50 hit on January 14, making it a fresh high since March
1980.
Gains came both overnight in Tokyo and again when London opened, as
investors covered short positions.
''It was the rise in borrowing costs yesterday, with one-month borrowing
rates going over 20 percent, that sparked it off,'' said one London
dealer.
''It makes people nervous given what happened with lease rates last
year,'' he added, a reference to the near paralysis which struck
platinum group metal markets last June, after a six-month freeze in
supplies from Russia.
Rocketing lease rates, as well as frightening off those consumers who
usually borrow metal rather than carry expensive inventories, also
forces speculators to cover short positions.
''It stops people selling short because it gets too expensive to borrow
metal. That's probably what's driving it higher,'' the dealer added.
Russia supplied an estimated 3.2 million ounces of palladium in 1997,
compared with South Africa's 1.75 million ounces and total supplies of
5.65 million, according to leading refiner Johnson Matthey.
The metal is used extensively in car catalyst technologies to remove
noxious exhaust gases, as well as in high-grade electronics and
dentistry.
Technical chart points count for nothing as everything hinges on Russia,
the dealer said.
''I don't think you can say where prices will go to, it's a
fundamentally driven market. If the Russians supply metal early next
week, it could be back to $210 within days but if we are having this
same conversation again in a month, it might be at $275,'' he said.
Johnson Matthey marketing manager Jeremy Coombes said he had expected
deliveries by late March, a view widely held in the market.
''It's looking like we are going to be later than we thought. The
contradictory messages we are getting from Russia now means it's
probably going to be April at the very earliest although one doesn't
know whether it will be more serious,'' he told Reuters.
Almazjuvelirexport, Russia's sole platinum group metals (PGM) export
agency, said only on Tuesday it had received no word on when it might
get a government go-ahead to hold official talks with clients on 1998
exports.
Palladium prices have firmed steadily from $202.50 an ounce bid at the
start of the year amid reports of delays in Russian exports. Prices were
$120.75 at the start of last year.
Consumers were increasingly likely to seek alternatives, Coombes said.
''Price determines demand to some extent and availability determines it
for others,'' Coombes said, citing the example of Japanese electronics
manufacturers now having to pay more than 1,000 yen/gram for metal.
''That's very expensive and a great stimulus for them to advance their
plans to substitute palladium with nickel to the extent that it is
possible,'' Coombes said.
For car manufacturers, delivery uncertainty rather than price was their
main concern in the short term.
''They have tied up their technology for the next two or three years.
It's difficult to switch a catalyst,'' he said.
But car makers would do well to avoid relying on palladium at the
expense of other platinum group metals (PGMs), Coombes added.
One country reaping the benefit is South Africa, said commodities
analyst Stephen Briggs of Societe Generale Frankel Pollak in
Johannesburg.
''It's a huge bonus to the South Africans. It was particularly
beneficial to Impala, their interim results were better than a lot of
people expected largely because of the higher price they received for
palladium,'' he said.
Impala Platinum Holdings Ltd (IPLA.J) outdid most analysts' forecasts
with interim results on February 9 which showed attributable earnings
nearly doubling to 293 cents a share from 154 cents a year earlier.
Palladium is mined from the same ore bodies as its sister metal
platinum, which is far the more important one for South African mines.
''It's affecting all the South African platinum producers in roughly the
same way,'' Briggs said.
((Patrick Chalmers, London Newsroom +44 171 542 8057.
london.commodities.desk+reuters.com)) |
