Commodity ETPs continued to see large inflows last week. Precious metals saw especially strong demand with Russia’s invasion of Ukraine raising fears of broader war and western sanctions on Russia…..
ETF Securities Research
Investors are being reminded of gold’s use as an insurance asset, with Russia’s unpredictable behavior in Ukraine raising demand for risk hedges. Palladium and nickel ETP demand has also increased on concerns that if the west puts trade sanctions on Russia, the world will lose access to a key supplier of both palladium and Nickel.
South Africa’s strikes entered their 7th week, adding to concerns about both platinum and palladium supplies.
Long platinum and palladium ETPs see the biggest combined inflows since June, totalling US$54.2mn, on supply concerns. Talks aimed at ending the strike that has halted South Africa PGM industry for over 6 weeks collapsed on Wednesday last week. So far, the strikes have taken about 320,000 ounces off the market, equivalent to almost 6% of 2013 global platinum production. The price of platinum has started reacting to the prolonged strike as producers’ stocks are fast approaching depletion. At the same time, concerns that Russia may face trade restrictions following its invasion of the Ukraine helped support the palladium price last week. With over 40% of world supply of palladium produced in Russia, any restrictions on Russian palladium exports would exacerbate what is already expected to be a large palladium deficit in 2014.
Long gold ETPs see inflows for the fourth consecutive week. Interest in gold continued last week with inflows of US$28mn, on the back of the Ukraine’s crisis. Members of parliament in the Crimea region voted to put joining Russia to a referendum to be held on March 16. Meanwhile, investors sought protection against recent emerging market jitters and ongoing geo-political turbulence, with the gold price trading at its highest level since October.
ETFS Nickel (NICK) receives US$8.1mn of inflows as price jumps to 9-month high.
Indonesia’s export ban is starting to produce an impact on nickel market, with Chinese stockpiles rumoured to be decreasing quickly. Worries over potential trade sanctions to be imposed on Russia also contributed to buoy prices last week as Russia is the 3rd biggest mine producer of the metal (as of 2012 data).
Long Coffee ETPs see US$56.5mn of outflows on profit taking. Coffee prices rose to a two-year high last week on concerns a drought in Brazil will reduce the crop in the world’s biggest producer. Brazil’s Southeast region is seeing the driest summer since 1972, according to the National Institute of Meteorology. However, given the extremely sharp price rise in such a short space of time and net longs in the futures markets looking highly stretched, the risk of a correction is very high in our view.
ETFS Longer Dated Lean Hogs ETP (HOGF) sees US$5.9mn of inflows as a swine disease hurts supply. Since the start of the year prices have gained almost 30% as a virus that is spreading across hog farms has drastically reduced availability for ready to slaughter hogs. With the peak consumer season in the US fast approaching, prices might continue to see upside potential.
Key events to watch this week. Following disappointing February Chinese export data (hurt by an artificially high y-o-y base due to suspected export over-invoicing last year), investors will be closely monitoring key Chinese statistics coming out this week including aggregate financing, retail sales and industrial production. Industrial production figures for the Eurozone, UK and India will also be watched closely to assess the strength of the recovery in those economies.