Commodities rebalance

According to Standard Chartered strategists, the imminent taper and strengthening US dollar, as well as shifts in risk appetite, have been weighing severely on the precious metals complex. Tactical and long-term investors, for example, have essentially scaled back across the complex. Markets have been increasingly concerned about the Fed’s tapering pace, the impact of the Delta variation on economic recovery, and China’s deteriorating demand.

Nonetheless, Stanchart’s FX team expects the USD will begin to fall again as the pace of immunization accelerates throughout Asia, and the prospect of rapid Fed tapering of asset purchases has diminished. It is good news for precious metals and commodities in general. The market’s attention is now shifting to the FOMC meeting on September 22. However, a tapering announcement is not likely until the November FOMC meeting. The September meeting is scheduled to introduce staff estimates, or ‘dots,’ for 2024. The dots for 2024 are projected to mimic the two rate hikes in 2023.

Precious metals selloff

Platinum, palladium, and rhodium have all recorded intra-year lows due to widespread disinvestment and as market balances continue to deteriorate.

Rhodium has dropped by more than 15% in the last week, trading around USD 12,250/oz at writing (the August 2020 low), after trading near USD 30,000/oz in March.

After touching levels above USD 3,000/oz in May, palladium plummeted more than 14% below the July 2020 low of USD 2,000/oz. Meanwhile, platinum fell only 6% to USD 980/oz, while gold fell by less than 2%. In early September, ETF and tactical interest in platinum and palladium declined by 38.6koz and 14.9koz, respectively.

Net short positioning in platinum has increased due to a mix of long liquidation and new short positions, bringing net fund length as a percentage of open interest to -10%. In contrast, new quick places have mainly contributed to a decrease in net positioning in palladium.

The current price action reflects a reduction in interest. Nonetheless, it comes just before New York Platinum Week, a week of data releases that should either validate or disprove looser supply and demand realities.

Stanchart predicts that Platinum Group Metals supply will loosen further in Q3-2021 due to chip shortages affecting car production.

Base metals rally eases

Base metals have started pulling back from recent highs at the current week after achieving substantial price increases in the latter half of last week.

Gains were led by aluminum prices, which reached a peak not seen since 2008 on September 13. They broke through USD 3000/t, but failed to retain those gains at the market close due to profit-taking. SHFE aluminum prices rose beyond CNY 23,000/t before falling again. Yunnan province in China had told aluminum smelters that output would be limited to less than August’s levels from September to December 2021.

LME aluminum inventories are at end-August levels of 1.30 million tonnes; SHFE aluminum inventories continue to decline, with a 3.7kt net outflow in the week ending September 10. SHFE inventories are at their lowest since 1 J, at 228.5kt.