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Palladium surges as rolling blackouts shut South African mines

Published on December 10, 2019


Commodity markets were relatively steady as the market digested developments in the trade talks and the Fed sat down for its policy meeting. The ANZ CCI ended the session up 0.3%, with gains across all sectors. Iron ore prices pushed higher, while coking coal was also up. Crude oil prices inched higher, pushing the energy sector up. Industrial metals were mixed; however, stronger copper prices helped drag it into the black. Precious metals were also higher, with palladium prices hitting a record high.


Crude oil prices switched between gains and losses as the market tried to make sense of the latest trade developments. A Bloomberg report suggested that the US and China re working on reducing levies and tariffs already in place, rather than delaying the ones due to implemented on 15 Dec. In any case, the Chinese still believe those tariffs will be delayed, according to this report. Both sides also appear to be keen on getting a right deal, no matter how long it takes. Expectations of another strong drawdown in inventories in the US also supported prices. A Bloomberg survey showed the market is looking for a fall of 2.5mbbls.


Weak demand in North Asia continues to weigh on the LNG market. South Korea is closing 10 coal-fired power plants from 10 Dec to reduce pollution levels during winter. However, it expects nuclear plants to pick up the slack, rather than LNG. The LNG Japan Korea Marker futures for January fell 0.5 cents to USD5.610/mmbtu. February futures were also weaker, declining 7.5 cents to USD5.415/mmbtu.


The precious metals sector was strong, led by gains in the PGM market. Palladium pushed through USD1900/oz after further supply issues in South Africa. Mining companies were forced to halt operations after a sixth day of rolling blackouts. The power grid has suffered a raft of breakdowns, which have forced the state-owned power utility Eskom to act to prevent the total collapse of the system. South Africa is the world’s second largest producers of palladium. The market is already tight amid strong demand from China and Europe following new stringent emissions regulations. This is will only exacerbate the situation. Gold remained in a holding pattern as the Federal Reserve say down for its 2 day meeting. We expect Chair Powell to reiterate the Fed’s mid-cycle adjustment is done for now. The FOMC’s dot plot is also likely to signal no change in policy next year. In saying that, we still feel the the next move is more likely to be down than up. This should ultimately support gold.


The base metals sector was broadly higher, with news of a possible delay of the 15 Dec tariffs on Chinese goods boosting sentiment. This saw copper prices push above USD6,100/t for the first time in seventh months. Copper has also been supported by stronger import demand and China’s renewed efforts to support growth Nickel rebound strongly, after earlier slumping to a five month low. Strong buying in the Asian session spilled over into the London market, with prices breaking back above USD13000/t. The metal has been under pressure as supply concerns in Indonesia eased, while inventories have been rising.


Iron ore prices remained volatile, with futures on the Singapore Exchange rising as much as 1.2% before easing back on the close. Futures on the Dalian Exchange also jumped between gains and losses. Optimism on Chinese demand remains relatively high, following news that China will continue to support growth. However, this goes against data that suggests infrastructure-spending remains subdued. The news flow of restarting mines and higher exports from Brazil has also eased. In fact, November trade data showed supply issues are still constraining the seaborne market.


Reports of lower coal production in China saw domestic prices gain. Mines in Shaanxi’s Yulin city are said to be curbing output after hitting quotas. This saw January thermal coal futures rising 0.3% to CNY546.2/t on the Zhengzhou Exchange. This failed to translate into gains in the seaborne, with Australian Newcastle January futures falling 0.8% to USD67.05/t.