The CME Group Inc. (NASDAQ: CME) has raised margin requirements for crude oil futures contracts, effective today. Contracts for WTI crude on the Nymex have risen from an initial speculative rate of $6,750 to $8,438, and the maintenance rate has risen from $5,000 to $6,250. That’s a jump of about 25% on a 1,000-barrel contract. Hedging rates also went up, from $5,000 to $6,250 for both initial and maintenance bids.

Perhaps the surprising thing is that it still costs so little. The initial rate increase amounts to barely 8% of the cost on a speculative bid on oil priced at about $100/barrel. The impact on crude traders was brief, as WTI crude prices dipped below $100/barrel early this morning, but have fought back to near $103/barrel.

One also has to wonder if CME will raise margins again in an effort to cool off volatility in the crude market. A large rise in the margins could drive off some of the speculative positions in WTI crude, but the danger to CME is that lower margins on the ICE will attract CME’s traders. The CME also has to be careful that it doesn’t whip up a political storm, where politicians once again take aim at speculation in the crude markets.

Gasoline prices could also feel the effects of flooding along the lower Mississippi as some refineries may be shut down as the floodwaters flow south. A refinery shutdown will almost certainly lead to a rise in the price of crude as well as refined products. That’s a little weird since the refiners won’t be processing crude it makes little sense that the price of crude should rise. But that’s the oil market.

The floodwaters and other weather events are also bearing down on grains. Global corn reserves are expected to be forecast at a four-year low tomorrow by the US Department of Agriculture. Corn planting has now hit about 40% of expectations, as farmers rush to get the crop into the ground before mid-May. Corn prices are up less than 1% today, to around $7.14/bushel as buyers wait to see what the weather has in store.

Wheat prices are up about 2%, to around $8.06/bushel in Chicago, as spring wheat planting proceeds at its slowest pace in nearly 20 years. Just 22% of the US spring wheat crop was in the ground as of May 8. Cold, wet weather gets the blame for the drop from an annual average of 61% planted by now.

Finally today, metals consultants GFMS Ltd. have forecast a rise in platinum prices from their current level of about $1,800/ounce to $1,925/ounce by the end of the year.  This in spite of the fact that a surplus of the metal is expected again this year.

GFMS attributes the rise in platinum prices to investor activity, not industrial demand. The firm said that 550,000 ounces of platinum were purchased for ETF investment in 2010 and that retail investors purchased another 76,000 ounces.

The ETFS Physical Platinum Shares ETF (NYSE: PPLT) is trading this afternoon up slightly at $178.60, within a 52-week range of $148.26-$186.69. The iPath DJ-UBS Platinum Total Return Sub-Index ETN (NYSE: PGM) is also up slightly at $42.17, within a 52-week range of $34.82-$44.57.

Paul Ausick

There are several ETF pruducts around the platinum and palladium trades: ETF Securities Physical Platinum Shares ETF (NYSE: PPLT), ETF Securities Physical Palladium Shares ETF (NYSE: PALL), First Trust ISE Global Platinum Index (NASDAQ: PLTM), IPath DJ-UBS Platinum TR Sub-Index ETN (NYSE: PGM) and UBS E-TRACS Long Platinum TR ETN (NYSE: PTM).  Morningstar has outlined the key differences here in detail on these and it is a must read for those looking at ETF and ETN products around commodities.

Our technical analysis affiliate is Adam Hewison of INO, and he has a new audio-video out looking at the current gold breakout.  He outlines why he think that gold trends all point to challenging the 2010 highs in the shiny yellow stuff.

The big risk here is that platinum could be much more susceptible to influences from investment demand over industrial demand.  Morningstart notes, “First, all the platinum ever mined would not fill up a modestly sized basement. There is nearly 17 times more gold mined per year than platinum, and most of that is put back underground again after it is refined.”

The gold trade looks back on.  The risk trade versus the defensive trade is still a fight with an unfinished outcome right now.  Stay tuned.

JON C. OGG

ETFS noted that the Platinum and Palladium plates and ingots are stored on behalf of each trust, and will undergo a bi-annual audit performed by an independent external bullion specialist auditor with results to be published.  Both the platinum and palladium ETFs have an expense ratio of 0.60% per year.

This will give ETF Securities a broader metals lineup after its ETFS Physical Swiss Gold Shares (NYSE: SGOL) and ETFS Physical Silver Shares (NYSE: SIVR) ended with combined assets under management of $492 million (US dollars) as of the end of the year.

We noted earlier in the week how these ETF launches were creating underlying moves in two key stocks: Stillwater Mining Co. (NYSE: SWC) and North American Palladium Ltd. (NYSE: PAL).

• The first, Stillwater Mining (SWC) is up another 5.5% at $12.42  after it hit a new 52-week high today of $12.65.  This one was at $9.48 on December 31 and $8.89 on December 24.
• The second, North American Palladium (PAL) has seen its shares get within a penny of the $4.20 high today and shares are now selling off on the news and down at $4.01 on 1.3 million shares.  That was a $3.50 stock on December 31 and was at $2.96 on December 24.

As far as other competing ETF (actually ETN) products, there are the UBS E-TRACS Long Platinum Trust ETN (NYSE: PTM) and iPath DJ AIG Platinum Tust Sub-Index ETN (NYSE: PGM).

At 11:41 AM EST we have seen just over 48,000 shares trade in PPLT and the last trade was at $157.64 (versus approximately $1.559.00 for platinum according to Kitco.com) and PALL has traded just over 85,000 shares with a last price of $43.43 (versus a palladium price of $423.00 according to Kitco.com).

JON C. OGG

We have seen varying reports on the proposed size of these ETF products, so we are not going to cover the proposed sizes.  ETF Securities Ltd. already offers the ETFS GOLD TRUST (NYSE: SGOL) as a gold ETF rival, and plans to launch a platinum ETF and a palladium ETF.  Both are to be backed by the physical metals rather than just contracts and tracking instruments seen in other commodity-related exchange traded notes.  This has speculation rising in some of the names around these instruments.

BS E-TRACS Long Platinum Trust ETN (NYSE: PTM) has been around since mid-2008.  The problem is that it trades under 100,000 shares on more than 80% of its last 90 days.  iPath DJ AIG Platinum TR Sub-Index ETN (NYSE: PGM) has been around since late-Summer-2008 and also has thin volume, trading 100,000 or more in not even one-third of its last 90 days.  The PTM is up only 1.3% today at $19.39 and the 52-week range is $11.20 to $20.63; while the PGM is up 1.05% at $41.09 and has a 52-week trading range of $22.48 to $47.90.

Platinum’s top use is for catalytic converters in automobiles and in jewelry.  But it also has uses in lab equipment and other commercial applications.  Palladium is part of the platinum group metals and is softer than platinum and is used in eliminating harmful emissions produced by internal combustion engines, jewelry, dentistry, electronics, fuel cells and more.

There are more recent reports that vary, but the USGS said 239 tonnes of platinum sold in 2006.  Of this, some 130 tonnes were for auto emission control devices, about 49 tonnes for jewelry, 13.3 tonnes in electronics, 11.2 tonnes in the chemical industry, and the rest of tonnes in other applications.

Stillwater Mining Co. (NYSE: SWC) produced 9,770 kg of palladium and 2,950 kg of platinum in 2006 according to the same 2006 USGS report used to show the size of the market in recent years.  Guess whose shares are up 13% today and guess whose shares hit a new 52-week high today… Yep, Stillwater.  Shares hit a high of $12.19 and have already traded over 3.2 million shares versus an average volume of 921,000 shares.  Just five trading days ago this was not even a $9.00 stock.

North American Palladium Ltd. (NYSE: PAL) has also been on a tear and shares are up 8% today.  At $3.90 currently, it hit a 52-week high of $4.11 today as well.  Thomas Weisel recently initiated coverage on this one with an “Overweight” rating and shares were at $2.84 on that recorded day in December.  That is a 40% run since before Christmas.

It is good that investors will have more avenues to take part in the price moves of these underlying commodities.  It will just be interesting to see if these new ETF products really change the underlying demand for these metals.  Kitco.com lists the base prices as $1,138.70 for gold, but listed around $15,50 as the price for platinum.  Platinum at one point crossed under the price of gold as demand cratered from all sources during the recession.  And palladium was shown to have a price of about $425.00.  Historically, the price of platinum was often in-line with gold but rarely under it on a longer-term basis.  But the price of platinum has also exceeded twice the price of gold at other extremes.

I have yet to see anyone post much thought to this, but it seems very likely and very sensible that if the regulators like the CFTC have looked into instruments trading oil and natural gas, then there is no reason that the metals markets would be immune to scrutiny nor that they would be immune from trying to curb or regulate the size of speculative instruments.  Yes that includes gold.  And ditto for platinum if this instrument gets very large and if it is believed to cause major price moves in the underlying commodity.

JON C. OGG
January 6, 2010

• iPath®Dow Jones-AIG Tin Total Return Sub-IndexSM ETN (NYSE Arca: JJT)
• Path®Dow Jones-AIG Platinum ETN Total Return Sub-IndexSM (NYSE Arca: PGM)
• iPath®Dow Jones-AIG Lead ETN Total Return Sub-IndexSM (NYSE Arca: LD)
• iPath®Dow Jones-AIG Aluminum Total Return Sub-IndexSM ETN (NYSE Arca: JJU)
• iPath®Dow Jones-AIG Precious Metals Total Return Sub-IndexSM ETN (NYSE Arca: JJP)

We have also seen the launch of a new carbon trading ETN and another large group of soft commodities ETNs.

Jon C. Ogg
June 25, 2006