Monday Thoughts – Commodity Prices


A strong underlying current of the recent market/economic rebound has been the rising prices of industrial metals and platinum group metals (PGM).

Copper and platinum come strongly to mind for a couple of different reasons. Copper, because it is used for water pipes and electric wiring, two highly important needs in a new construction project; Platinum because it is simultaneously a precious metal and an industrial metal used in catalytic converters, in high precision equipment, and for jewelry.

Are the rising prices reflecting an economic upswing? Or does it represent just a rebound off a ZERO-activity 4th quarter of 2008? Or in platinum’s case, a bounce off of an oversold low level for investors worried about inflation seeking haven in a precious metal?

Some Clues

Recently, South Korea ordered 55,000 tons of copper to refill depleted supplies, but, in the 4th quarter of 2008, no one ordered ANYTHING so there was bound to be a “bounce” up in orders and economic activity in 1Q 2009!

Copper ETN - Source: Yahoo Finance

Copper ETN - Source: Yahoo Finance

Therefore, whether copper demand over the past 3 months has been simply to refill empty supply levels or if it is a sign of the early stages of growth, it will take more data to make that determination. Some Asian nations with money in reserves are making the decision to purchase metals and supplies now instead of when prices are higher in the near future (as they’re projecting).

Platinum, an important component in pollution control of cars in their catalytic converters, traded at a price per ounce in the fall,  that paralleled gold, which certainly was surprising since platinum tickled 2,000 USD per oz last Spring as gold peaked at “only” $1,030. Economists and the average layman, certainly predict the increased usage of automobiles in growing nations such as China or India, and subsequently, an eventual massive growth in the need for platinum or its close substitute palladium (pd).

Platinum ETN - source; Yahoo Finance

Platinum ETN - source; Yahoo Finance

However, with prices so low, it may have made sense for a precious metals investor to accumulate a position at (what appears to be) such a low price. Right now, I’m not sure exactly what is happening but I do believe in the global growth story and that if it’s not done privately it will be done by governments as electric grid expansion, water infrastructure improvements,  and city development continue.

Chris Grande