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To: goldsnow who wrote (8185)	3/11/1998 7:33:00 PM
From: goldsnow	Read Replies (2) \| Respond to of 116764

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))

To: goldsnow who wrote (8185)	3/11/1998 7:42:00 PM
From: goldsnow	Read Replies (2) \| Respond to of 116764

FEATURE - Pre-EMU forex speculation no grave concern 01:01 a.m. Mar 10, 1998 Eastern By Pratima Desai LONDON, March 10 (Reuters) - Economists across Europe dismiss as small the chances of a market onslaught on currencies joining economic and monetary union (EMU) between May this year and January 1999 when the project is due to be launched. Fear of central bank intervention and their ability to monopolise forward rate markets, alongside political determination for a timely start to the project, will keep markets under control, they say. ''The likelihood of speculative attacks on currencies joining EMU is very low,'' said Luca Mezzomo, economist at Banco Commerciale Italiano in Milan. European Union finance ministers decided last September to announce bilateral conversion rates among participating currencies on May 2, eight months before the planned launch of the euro. The conversion rates are expected to be based on the central parities of the Exchange Rate Mechanism (ERM). ''They will announce the rates in May, and in practice they are not committed to them until January but the threat of announced rates being enforced will be enough to bring markets into line,'' said Mezzomo. Speculative risk arises from the fact that the rates to be announced in May are not legally binding under the Maastricht Treaty. The chosen rates are a statement of preference and there could be a problem if a currency was to trade at a different level from its pre-set conversion rate on the last day of trading at the end of December 1997. ''Central banks can manipulate markets and ensure their preferences are met. On the last trading day of 1998, there may have to be significant intervention,'' said Michael Lewis, senior currency analyst at Deutsche Morgan Grenfell in London. ''But it won't be necessary. The markets will have anticipated and arbitraged away this eventuality.'' MARKETS HAVE DISCOUNTED EMU Over the past two years volatility in the mark's European cross rates has slowed to a trickle as rates converged close to their central ERM parities. Pricing in the options market also reflects the market's conviction that EMU will go ahead without major upheavals in the remaining months. Implied volatilities on options on the mark's crosses have dwindled, with mark/French franc volatility at historic lows of not even one percent compared with more than six percent two years ago. Options allow the holder to buy or sell currency at a given date at a preset rate. The lira has strengthened by more than 20 percent since March 1995 to around 983 per mark amid growing expectations that Italy will be a founder member of EMU. Its central ERM rate is 990 per mark. Over the same period the yield difference between 10-year Italian bonds and German bonds has dropped by more than six percent to about 0.30 percent. Expectations are for EMU to go ahead with 11 countries. The core group -- Austria, Belgium, France, Germany, Luxembourg and the Netherlands -- is expected to be joined by Finland, Ireland, Italy, Portugal and Spain. ''Markets are now focusing on the contribution of a country to the economy of the euro-11 rather than on differences between them,'' said Stephen King, chief European economist at HSBC James Capel in London. CENTRAL BANKS COULD FLEX MUSCLES Faced with the combined reserves of all 11 central banks, analysts doubt whether currency markets will have the courage to start a protracted battle before the start of EMU. ''My estimate of the reserves of the 11 is in excess of $200 billion,'' said Ray Attrill, director of analysis at 4CAST in London. ''The markets are very unlikely to test their collective might.'' Interest rate convergence, expected to occur in the second half of this year and essential for currency convergence may cause some anxiety. ''The period between May and January could be more comfortable if rates had already converged,'' said Herve Goulletquer, chief economist at Credit Lyonnais in Paris. Convergence between French and German interest rates has already taken place. The repo rate in both countries is 3.3 percent. But between Ireland, with interest rates at 6.75 percent, and Germany, interest rate convergence is still to come. Attrill said the rate of convergence -- to the ERM central rate -- between the lira and the mark will be dependent on the pace of convergence between their interest rates. KEEPING AN EYE ON FORWARDS Yield differentials between those countries hoping to be founder members of EMU can be seen in the forwards market, where currencies can be bought or sold for delivery at a future date. One mark will buy around 3.3525 French francs -- near the ERM central parity at 3.3539 -- whether the delivery date is tomorrow, next week, in May or at the end of December. But the Irish punt, trading about 2.4850 marks, is almost three percent higher than the ERM central rate at 2.4111. For early May or end-1998 one Irish punt will buy around 2.4750 marks or 2.4580 respectively. Both forward exchange rates remain significantly above the ERM central rate because of the yield differential to be gained by holding Irish punts. But despite some remaining divergence there is little to be gained for speculators, analysts said. ''Governments could take the lead in offering to buy and sell forward contracts for end-December to ensure they get the rates they want,'' said Lewis. ''Who is going to bet against them?'' Another pointer for a smooth transition to EMU is the financial turmoil in Asia and its impact on the mark's crosses. King at HSBC contrasts the relative stability of mark crosses since the Asian turmoil started with the Mexico crisis in December 1994. ''Then investors bought marks causing problems for the more volatile European currencies,'' King said. ''There has been no safe-haven flow into marks over the past few months.'' Probability of turbulence could rise if the dollar fell significantly. But analysts said the correlation between the U.S. currency and mark crosses is not as strong as it used to be. Moreover, the dollar is well supported by the strength of the U.S. economy. ''For example, dollar/mark would have to drop to 1.35, before mark crosses became volatile,'' Lewis said. A possible source of turmoil may be verbal expressions of dissatisfaction with agreed conversion rates. ''It could be a starting point because if taken seriously then the whole process of negotiating conversion rates would have to start again,'' said Gerhardt Grebe, chief economist at Bank Julius Baer in Frankfurt. But Grebe saw a minimal chance of this happening given that all conversion factors have to be agreed unanimously. ((London newsroom, +44 171 542 2737, fax +44 542 5293, uk.forex.news+reuters.com))