Steven Zoernack, partner at GoldVest, announces revised estimate for price of Palladium. Palladium is one of a group of six metals often referred to as PGM’s, which stands for Platinum Group Metals. This group includes the well-known Platinum and the relatively obscure metals called rhodium, iridium, ruthenium and osmium. Platinum is 15 times rarer than [...]

One of my mates read my most recent Diggers & Drillers newsletter, in which I took a look at metallurgical coal. All he could say was “Coal? It’s not exactly…” before I deftly turned the conversation back to the snags on the barbeque I was manning.

In the last three months I’ve written about platinum – the rarest of all precious metals; copper – the base metal of kings; and iron ore – Australia’s most valuable export. So maybe he was expecting something more glamorous this month.

But coal IS glamorous.

Particularly metallurgical coal, or ‘met coal’ to its mates. This is top quality coal with the highest carbon content. In terms of earning this country export dollars, it comes only just behind iron ore.

As well as this, Australia dominates met coal global trade supplying 64.9% of the seaborne market. And right now, the pricing system is having a once in a lifetime shake-up, which will mean better profits for producers in the future.

Coal’s future is burning bright.

The big producers are switching from an annual benchmark price system, which has been used as for as long as we have been exporting to Asia, to new flexible quarterly prices. These are much more likely to track the spot price which has recently become a much better indicator of coal’s true value.

But you don’t have to take my word for it. The latest commodity report from ABARE, the government’s commodity research body, forecast that met coal export prices will increase just shy of 30% this year.

But this is already looking a bit modest.

Now big players like BHP Billiton and X-Strata are doing deals with steel makers to sell top quality met coal at $200/tonne, which is an epic 55% jump on last year.

The government stats also forecast a 20% increase in the volume of Australian met coal exports over the next five years, from 150 million tonnes a year to 183 million tonnes a year, as the chart below shows.

Click to zoom in on World Metallurgical Coal Trade table

So where are these extra 33 million tonnes that it is so confident of going to come from?

About a third of it is accounted for in the notes, but buried deeper in the footnotes was a mention of how the company I tipped this month is likely to bridge a large part of the gap. This makes sense as it has Australia’s biggest met coal resource by a yard.

Another important thing this chart shows is that Indian met coal demand is the fastest of all countries, growing at an average of 13%. It will be the world’s biggest consumer well before the end of the decade at this rate.

This is a good thing for Diggers and Drillers readers as the company I tipped is strategically positioned to supply the Indian market.

With prices and export volumes rising, the whole coal sector is running hot at the moment. There have been plenty of mergers, acquisitions, and talk of takeover targets.

The Chinese bought Felix resources in December. And recently MacArthur made a bid to takeover Gloucester Coal. Then just this week, US company Peabody Energy made a takeover offer for MacArthur Coal. This offer gave our March recommendation a decent boost purely on the speculation that it could be a takeover target in the future as well.

Personally I don’t reckon it’s likely in the near future, and that our company has got a long way to go yet. One thing is for sure though. We can expect a lot of action in the coal sector, and I expect to write a lot more about it in the monthly and weekly issues of Diggers & Drillers.

Regards,

Dr. Alex Cowie
Editor, Diggers & Drillers
for Money Morning Australia

Little economic news was due for release as US markets stayed closed for Martin Luther King Day.

Government bonds were flat across the board. Commodity prices dropped 1% on average, as crude oil held below $79 per barrel and foodstuffs fell.

“Gold and silver were driven up by platinum and palladium,” says one Tokyo dealer of the overnight action, noting “aggressive buying” of platinum-group metals after last week’s launch of exchange-traded PGM products for US investors.

Attracting $100 million on their first day, ETF Securities’ new “physically backed” platinum and palladium funds – which waited 8 months for regulatory approval – are “almost like a warehouse receipt” according to founder and chairman Graham Tuckwell in an interview with HardAssetsInvestor.com.

“I am hearing of US and European dealers buying these metals but I haven’t seen Chinese buyers,” said Standard Bank’s Yuichi Ikemizu in Tokyo, speaking to Reuters.

Compared to current demand for gold ETFs, “The outlook for platinum and palladium looks quite bullish,” he added.

New York’s SPDR Gold Trust, the world’s largest gold ETF, has reduced the volume of gold backing its shares by 1.9% so far in 2010 – some 20 tonnes.

“Private investors have remained on the side-lines in the first [few] days of 2010,” says Wolfgang Wrzesniok-Rossbach in his Precious Metals Weekly for German refining group Heraeus.

“Although there is demand from this sector, it is at a relatively low level. Additionally, in Europe as well as the Far East, increased supplies from scrap-gold came to the market, which is probably why gold today is 2% below its year’s high.”

Speculative traders playing gold futures and options on New York’s Comex exchange last week increased their “net long” to the equivalent of 945 tonnes, the largest level since the start of December and 2.6% greater from the week before.

The total “open interest” in Comex gold contracts grew by 2.5%, as did the gold price over the same period.

“Considerable amounts of cash have been funneled into speculative gold trading and not created any physical value for the economy,” said the State Bank of Vietnam last week.

“This [money] should have been invested in more productive activities.”

Some $108 million in commercial Vietnamese bank lending has gone into gold derivatives, the Vietnam Investment Review estimates.

The government in Hanoi has ordered all leveraged gold markets be shut by March 31st. The typical position across Vietnam’s twenty gold futures markets is leveraged 13 times over, local press report.

Today the Banking Regulatory Commission in China – now the world’s largest private consumer of physical gold – warned the country’s commercial banks to improve their risk controls, targeting new lending to the “real economy” after credit supplies swelled by 32% in 2009.

“Banks should pay high attention to changes in the property market and strictly implement relevant credit policies to enhance supervision…of property loans,” the CBRC says in an official statement.

Back in Europe, the government of Iceland may collapse according to ratings-agency Standard & Poor’s, after the president vetoed repayment of $5.5 billion owed to Dutch and UK bank depositors earlier this month.

“The risk is there that the [International Monetary Fund's $4.6bn loan] will fall apart and with that, the downside risks would increase very considerably,” said S&P’s managing director for Europe, the Middle East and Africa, to Bloomberg by phone.

Across Western Europe, withdrawing the massive central-bank and fiscal stimuli of 2008-2009 may prove “more difficult than the crisis itself,” according to a report from Moody’s Investors Service, warning that much of the Eurozone will not return to pre-crisis growth rates.

“Greece faces a problem which is endemic through [the Eurozone],” says Standard Bank strategist Steven Barrow today. “Namely that without enough fiscal, monetary and exchange rate levers to pull in times of crisis, the gap between the stronger nations and the weaker ones just keeps on increasing.

“The consequence of this that the economic convergence, that was required for countries to be a part of [the monetary union], gets destroyed.”

Gold jewelry exports from Italy – the world’s third largest fabricator after China and India – fell 20% by value in 2009, leading industry figures said this weekend at the country’s top jewelry fair, the VicenzaOro First which opened and Saturday and runs until Thursday.

“The ‘mini recovery’ that the markets are revealing is uncertain and its real consistency and duration are today still unknown,” said Roberto Ditri, the Fair’s new president, in his opening speech.

“The only certainty is the tangible recovery in some market areas: China, India and Brazil have got off again to a decisive start. But it is not automatic that they will trigger an equally strong recovery in other economies.

“In this context, the jewelry sector must react and it must be supported to do so.”

Consolidation amongst Italy’s jewelry producers continues apace, says JewelleryOutlook.com, with major player Rosato buying another privately-held fabricator, Calgaro, last week.

Adrian Ash
for Money Morning Australia

Adrian Ash is head of research at www.BullionVault.com

Platinum has the makings of being the commodity story of 2010. Right now, the stars are aligned for this super rare metal, and this year I expect it will even outperform gold and silver.

Over the last three months Platinum prices have already risen 15.8%. And that’s set to continue.

So why are investors worldwide getting so excited about platinum? Let me tell you.

First of all, the supply of platinum is really tight.

When the world asks for more of the stuff, the industry is stuck in first gear and just can’t increase the supply. For instance, it’s taken the industry thirty years to just double production.

This is partly because it’s so rare. For every trillion particles in the earth’s crust, just three parts of them are platinum. Last year the entire industry managed to squeeze out just six million ounces, which would fit in a box measuring two metres on each side!

Second, demand is rising fast.

The four main groups of users take everything the industry can provide already. With demand rising, a global platinum deficit is on the way.

Autocatalyst manufacturers are the most notorious users of platinum, but last year they used just over a quarter of the supply. Between them and other industrial users, such as computer hard disk manufacturers, they bought about half of global platinum supply last year.

If the global economy continues to recover, these two groups will need more platinum.

Funnily enough, the biggest users of platinum were jewellery manufacturers. They took up 42% of supply last year.

They mopped up what other industries didn’t need that year.

And now the world has got an increasing taste for platinum jewellery. The Chinese platinum market is in its early days but is taking off fast. This has the scope to be a huge destination for the world’s platinum.

But the most exciting source of platinum demand by a mile is the new kid on the block – the Exchange Traded Funds (ETFs).

Between 2006 and 2009 they have gone from zero, to ten per cent of the market. They buy the metal and hold it on behalf of investors. The Investors can then buy a portion of the platinum, like they were buying a share in a company. It’s an easy way to invest directly in the metal.

For example, Gold ETFs do this and have been a massive winner. The one on the New York Stock Exchange has now got the sixth largest gold holdings in the world.

And platinum ETFs are also growing rapidly. A new platinum ETF (ETFS Physical Platinum shares) listed on the New York Stock Exchange earlier this month.

Investors buy in for one reason – they expect future price rises. This new ETF has been given a whopping seven percent allocation of the world’s platinum supply.

This is game-changing news for two reasons.

Firstly there isn’t a spare seven percent to go around. It’s just not there.

Secondly the ETF puts a massive investor base in front of the platinum market which is basically miniscule. It’s just a tenth of the size of the gold market which in the big picture is also tiny.

So ETFs will mop up at least 17% of the market this year. If the new ETF is a success, it will grow and others may follow its footsteps.

Make no mistake; demand for platinum is on the rise.

So we have the makings of a perfect storm:

• Super-tight supply.
• Rising demand from multiple users.

This is exactly what I’m always searching and hoping to uncover for Diggers and Drillers readers: A commodity right in the centre of a perfect storm.

In mid-December, platinum was ticking all the boxes and then some. So, I tipped a stock that was well placed to reap the benefits. Already, Diggers & Drillers readers that acted on the tip are already enjoying fifty percent gains on their investment within a month.

From where I’m sitting, platinum looks like it is going to have a great ride well beyond the end of this year as well. Even before the new ETF burst onto the scene, there was already a forecast platinum shortage for the next few years. The ETF will only multiply this shortage.

And where there’s a shortage there’s a price rise.

Regards,

Alex Cowie
Editor, Diggers & Drillers

60-Second Market Round Up
by Shae Smith

The S&P/ASX 200 was boosted after the announcement of a lower than expected unemployment rate. Unemployment was down to 5.5%. The index closed up 29 points to finish at 4,898.00.

The Dow Jones Industrial Average had a shaky start based on disappointing December retail results. The market was expecting a 0.50 increase and instead the results showed a 0.3 decrease in spending. Thanks to the technology sector, the Dow managed to close up 0.28% and finish at 10,710.55. Read more here.

Overnight in the UK, the FTSE added 0.45% to close at 5,492.20 despite a weak retail sector. Mining companies, like Xstrata [FTSE: XTA] ended the day 4% higher which helped the index finish in the black.

The Nikkei posted its highest close in 15 months, ending the trading session at 10,907.68, up by 1.61%. Panasonic Corp [T: 6752] was up yesterday by 6.10%, based on hopes of a positive earnings season in the US. Find out what else drove the Nikkei here.

The price of spot gold in Australian dollars is trading at $1,225.87 while in US Dollars it is trading at $1,141.90. The price of silver in Aussie dollars is $20.05 and in US Dollars it is $18.67.

The Aussie dollar versus the US dollar is trading at USD$0.9316, and against the Japanese Yen JPY84.96

Crude Oil has continued its yo-yo like pattern. High stock levels and a sharp decrease in demand are the drivers behind the overnight decline. Crude Oil closed at USD$79.19

For the biggest movers on the market yesterday click here…

What about platinum? Have a look at the chart: the medium-term bullish trend in place since last November may above soon. A correction is expected.

Indeed, 11 months of up-trend have driven platinum price to a technical resistance that is likely to prevent a further rise. The historical high price (point A on the chart) posted in early March 2008 at $2,308 was followed by several months of correction and consolidation. The real plunge started at mid-July last year. In just 3 months, platinum prices fell from $2,059 to $752 (point B, down 63%).

Click to enlarge

A rebound was initiated in November. Some momentum built up and eventually generated a bullish trend. Two weeks ago, the price action failed to break above $1,350. This level corresponds to the 38.2% Fibonacci retracement of the decline occurred between extreme points A and B. It also corresponds to a previous intermediary support zone, where the price action had bounced back in August 2008 (point C). Previous supports often become new resistances. That’s why some profit-taking has been triggered at $1,350: it was a technical opportunity to reduce risk and lock in decent gains.

From $752 to $1,350, it means that platinum prices have already bounced by 79% since last November. According to several indicators (Relative Strength Index but also Chande Momentum Osicllator), an overbought configuration was obvious at mid-September. The upside is very limited and the risk is clearly downward. Yesterday the price closed at $1,300, but there is more to come before bull players will take the opportunity to re-enter long trades. Technically speaking, there is probably 15% more to correct before the price action reaches a support line.

This target at $1,100 corresponds to a previous support area where the price action bounced twice (points D and E) in May and July this year.