Investing

European Union Aims to Outlaw Cars, and China Could be Using Too Much Food to Make Biofuel (PALL, PPLT, SWC)

Time now for our daily look at commodity prices and news. While a new plan from the European Union might seem to belong more properly in our Alternative Energy Daily, it’s being noted here for its potential impact on metals. Specifically, the EU plan sets a goal for 2050 that calls for cities to phase out gasoline-powered cars completely.

That may be a hopelessly optimistic goal, but if the EU can even get a start on such a plan, it could play havoc with the platinum and palladium, both of which are used extensively in catalytic converters. Platinum and palladium prices have risen nicely in the past year, with the ETFS Physical Palladium Shares ETF (PCX: PALL) gaining nearly 60% in the past 12 months and the ETFS Physical Platinum Shares ETF (PCX: PPLT) up a much more modest 6% or so. Stillwater Mining Co. (NYSE: SWC), the only platinum and palladium miner in the US, has seen its shares rise more than 60% in the past 12 months.

The world’s largest palladium supplier, Russia, is reportedly seeing shrinking stockpiles and shipments to Switzerland, an important palladium hub, are down by -12%. Russia treats information about its palladium extraction as a state secret, so it is difficult to get accurate information.

Cocoa prices have fallen more than 4% today, to below $3,100/metric ton. Traders speculate that the commodity hit a technical marker that sparked the sell-off because the political situation in Ivory Coast has not changed markedly for the better. If a political solution is reached, however, traders do expect prices to fall on forecasts of high West African production in 2011.

Prices for arabica coffee also fell, and again the cause is thought to be technical indications. Supplies of the high-quality beans is still tight and is expected to remain tight for some time. Prices for robusta beans, a lower grade of coffee, have fallen following more shipments from Vietnam, the world’s top producer of robusta beans.

And if you take sugar in your coffee, raw sugar prices are rising as well as the Brazilian government is urging millers to produce more cane-ethanol. Higher prices for cane-ethanol are driving the government’s push, as the demand for the fuel is expected to keep refined sugar prices high.

The US International Trade Commission has just released a study on “China’s Agricultural Trade: Competitive Conditions and Effects on US Exports,” which includes a section on how China’s state-directed policy of producing up to 12 million metric tons of biofuels by 2020 may affect the country’s food security. [http://www.usitc.gov/publications/332/pub4219.pdf] In 2010, China became a net importer of corn, taking more than 1 million metric tons, probably because as much as 80% of China’s ethanol production comes from corn.

Paul Ausick