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Commodity ETP Weekly: Palladium and Copper ETP Demand Rises on Tightening Physical Supply Outlook

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Overview
All eyes remain on the Fed, as the question of whether or not the Fed will start reeling back its quantitative easing program in the coming months remains the key driver of global markets.  Last week investors continued to lean  towards a “sooner rather than later” QE cut-back, driving down the prices  of many  commodities.   Oil has been  an exception  as an expected step-up of US intervention in Syria following the alleged use of


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chemical weapons by Syrian government forces has increased regional supply risks.  This week’s Fed meeting on Tuesday and Wednesday will hold particular significance as it will include revised economic forecasts and a follow-up press conference. Recent US consumer, employment  and real estate market data has been relatively positive, but continued low inflation provides room for the Fed to take a wait and see stance. Commodity ETP investors appear to be betting on continued cyclical strength and an early reduction in QE,  with inflows continuing into more cyclically-sensitive commodities such as palladium, silver and copper and gold continuing to see outflows.

Palladium ETPs see first inflows in a month on South Africa power and labour concerns. While platinum ETPs have seen US$85mn of inflows over the past month, flows into palladium  were  negative until last week when ETFS Palladium Trust (PALL) saw US$7.4mn of inflows. Both platinum and palladium are affected by supply concerns stemming from labour disputes in South Africa and unstable energy supply. However, autocatalyst demand for palladium is likely to be healthier  than platinum given strong sales of gasoline engine cars in the US and China compared to lacklustre sales of diesel cars in Europe.
Copper  ETPs  see inflows on deteriorating copper supply outlook and greater confidence in demand recovery.  ETFS Copper (COPA) received US$12.4mn of inflows as the combination of a wall collapse at the world’s second largest copper mine (Grasberg in Indonesia) and a wall slide at a key mine in the US (Bingham Canyon) continues to hit supply. Supply expectations were  further disappointed  by Rio Tinto’s delay of  its first shipments from its new Oyu Tolgoi mine in Mongolia.
ETFS Short Crude Oil (SOIL) sees outflows as the US authorises Syria intervention. US$12.5mn flowed out of ETFS Daily Short WTI Crude Oil  (SOIL), as  President Obama  authorized  lethal military aid to rebel groups in Syria. Oil prices have started to rally as perceived supply risks increase.
A bearish US agriculture report drives funds out of agriculture ETPs. The USDA in its monthly WASDE report kept its  supply forecasts for corn and soybean  firm,  disappointing  investors  who had expected supply estimates to fall following late planting this year. Outflows from ETFS Grains  (AIGG) were the highest since October 2010 (US$18.6mn). Investors also redeemed US$4.5mn of ETFS Longer Dated Grains (GRAF), US$5.3mn of ETFS Corn (CORN) and US$2.1mn of ETFS Soybeans (SOYB). The upcoming USDA Planted Acreage Report on June 28th
 will give further guidance on planting progress.
Gold ETPs continue to see outflows as US QE tapering expectations set in.  Physical gold ETPs saw US$101mn of outflows last week  as continued expectations of imminent tapering of US quantitative easing hurt price expectations.  Physical demand, which has been a counterweight to falling  investor  demand,  is under pressure from the Indian government seeking to wean consumers off gold.  According to the Indian Ministry of Finance, gold imports  fell  from an average of US$135 million per day in mid-April to just US$36 million per day in early June 2013.
Key events to watch this week.  Following  strong jobs growth  last month, but mixed data  elsewhere,  investors will be poised for further guidance from the Fed regarding when it will start tapering its bond-buying programme.

Source: ETFWorld.ch

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