FUNDS: PGMs - COTR - Specs cut their bullish bets

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Boris Mikanikrezaiboris.mikanikrezai@fastmarkets.comMetals Analyst+44 (0) 20 7337 2151

London 20/03/2016 - Key notes:

  • Speculators cut their bullish bets in platinum and palladium over the reporting period (March 7-14), the latest CFTC statistics show.
  • We expect fresh risk aversion in the coming days/weeks to lead to strong spec buying interest in platinum. But this may not be the case for palladium given its high correlation with risky assets.
  • A key downside risk to our bullish view on speculative sentiment toward the PGMs is a possible deterioration in autocatalyst demand due to lower car sales in China. For now, sales have held up relatively better than expected.

Platinum spec positioning

The net long fun position (NLFP) in platinum tumbled for a second straight week over March 7-14. As of March 14, it stood at 30,175 contracts, down 8,452 contracts or 22% from the previous week but still up 4,761 contracts or 19% in the year to date.

Open interest dropped by 3% over the reporting period while Nymex platinum prices fell 2.5%. This does not offer us a clear bullish market set-up.

    

The fall in the NLFP was principally driven by long liquidation of 3,495 contracts and short accumulation of 4,957 contracts.

Spec sentiment seems to have taken a turn for the worse, judging by the pace at which longs exit their positions and shorts add on their positions. But considering the deep complacency across the financial markets, fresh risk aversion seems likely in the coming days/weeks. In this case, we may expect speculators to turn more bullish on platinum.

Looking ahead, we think that spec sentiment may deteriorate further if there are no clear signs of a pullback in global risk appetite.


Palladium spec positioning

The NLFP in palladium decreased slightly over March 7-14. As of March 14, it stood at 16,578 contracts, down 458 contracts or 3% from the previous week but it remains up 2,392 contracts or 17% in the year to date. 

Open interest was little changed over the reporting period while palladium weakened by 3.6%, which is an unclear market configuration.

 

The small decrease in the NLFP over the reporting period was mainly driven by long liquidation of 437 contracts and marginally reinforced by short accumulation of 21 contracts.

Despite the positive environment for risk assets last week, speculators were unwilling to extend their net long positioning, confirming further our view that spec positioning is overstretched on the short side. The room for speculative selling in the coming weeks is elevated, in our view.

Looking ahead, we think speculative positioning in palladium is vulnerable to deterioration in the days and weeks ahead, principally because we expect fresh risk aversion stemming from too much complacency across the markets.


(Editing by Mark Shaw)



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