ARTHA VIDHYA: Bullions traded in Mcx

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Sunday, February 20, 2011

Commodities - PLATINUM

Platinum is the rarest of all precious metals. It has several unique chemical and physical properties that make it essential in a wide range of industrial and environmental applications. Platinum is also considered as one of the finest of all jewellery metals.

Major Characteristics

Platinum as a pure metal is silvery-white in appearance, lustrous, ductile, and malleable. It is widely used in several industrial applications as it possesses high resistance to chemical attack, excellent high-temperature characteristics, and stable electrical properties.
Platinum is corrosion resistant and is more precious than gold. Platinum's wear- and tarnish-resistance characteristics are well suited for making fine jewelry.
Platinum is traded as a commodity with prices determined by market forces. It is also a widely sought after investment avenue in recent years. However, it is not widely treated as a monetary base like gold

Global Supply Demand Scenario

The supply of platinum is met by mine production, auto catalyst refining and jewellery refining with their respective contribution estimated to be 6.15 million ounces, 1 million ounce and 0.9 million ounce in 2008.
The annual production of platinum has averaged around 6.2 million ounces (193 tonnes) in the previous three years from 2006 with more than 90% of the production coming from South Africa (76%) and Russia. The other producers are United States of America, Canada and Zimbabwe.
The production of platinum is highly dependent on South Africa's production with 2009 output from South Africa, Russia, USA and Zimbabwe estimated to be 4.7 million ouces, 0.74, 0.25 and 0.33 million ounces respectively.
The platinum mining industry is very capital intensive and it is reported that approximately 10 tonnes of raw ore has to be mined to produce just one pure ounce of platinum.
Unlike other precious metals like gold and silver, there are no large above-ground platinum stockpiles to protect against significant supply disruptions. Some estimates predict that existing above ground reserves would last only for a year, if platinum mining was suddenly stopped.
The demand for platinum mainly comes from auto catalyst, jewellery, other industrial application and investment. The other industries uses platinum are electronics, glass and petroleum industry.
The total global demand for this rare metal is reported to be around 7.79 million ounces in 2008, with consumption by auto catalyst (used in automobiles), jewellery, investment and other industrial applications estimated to be around 3.8, 1.6, 0.45 and 1.9 million ounces respectively.
North America, Europe, China and Japan are the most important economies accounting for majority of the global platinum consumption.

World Gold Markets

The London Platinum and Palladium Market (LPPM), which provides the industry benchmark price ‘London fix’

Derivative exchanges at New York – CME (COMEX), TOCOM (Japan), MCX (Mumbai)

Indian Platinum Market

India's appetite for platinum has been steadily increasing in recent years on account of the country's economic progress leading to rising industrial demand and increasing preference for platinum jewellery in urban areas.
India's consumption of platinum in 2008-09 is estimated to be around 932 kgs, which is expected to rise to around 1200 kgs in 2009-10.
The approximate consumption by various sectors in India is estimated to be automobile (55%), petrochemicals (25%), jewellery (15%) and electronics & dental (5%).

Market Moving Factors

Indian platinum prices are highly correlated with international prices. However, the fluctuations in the INR-US Dollar impact domestic platinum prices and have to be closely followed.
The global prices are driven by a host of factors with macro-economic factors like strength of the global economy, currency movements, interest rates, rising importance of emerging markets being major influencing factors.
Economic situation in major consuming countries like USA, Europe, Japan and China influence consumption on account to its high demand from industrial sectors, especially automobiles.
Platinum production is highly skewed with just four mines and two countries producing almost 90% of the total annual production. Prices are influenced profoundly by production disruptions, policies taken in producing countries. The influence of this factor is enhanced by the absence of any significant global stocks of platinum in the world, unlike that of gold and silver. Additionally, platinum mining is a very capital intensive industry, which discourages entry of new players.
Any change in global stocks, of which a major portion is present in Russia do influence prices.
The price movement in other precious metals, especially gold is a major influencing factor.

Measurement

Weight Conversion Table

To Convert from	To	Multiply by
Troy Ounce	Grams	31.1035
Troy Ounce	Kilograms	0.0311035
Million Troy Ounce	Tonnes	31.1035
Kilograms	Troy Ounce	32.1507
Tonnes	Troy Ounce	32150.7

Commodities - SILVER

General Characteristics

Silver's unique properties make it a very useful 'Industrial Commodity', despite it being classed as a precious metal.
Demand for silver is built on three main pillars; industrial uses, photography and Jewellery & silverware accounting for 342, 205 and 259 million ounces respectively in 2002.
Just over half of mined silver comes from Mexico, Peru and United States, respectively, the first, second and fourth largest producing countries. The third largest is Australia.
Primary mines produce about 27 percent of world silver, while around 73 percent comes as a by-product of gold, copper, lead, and zinc mining.
The price of silver is not only a function of its primary output but more a function of the price of other metals also, as world mine production is more a function of the prices of other metals.
The tie between silver and economic activity is strong, given that around two-thirds of total silver fabrication is in the industrial and photographic sectors.
Often a faster growth in demand against supply leads to drop in stocks with government and investors.
Economically viable primary silver mine is a function of the world silver price level.

Indian Scenario

Silver imports into India for domestic consumption in 2002 was 3,400 tons down 25 % from record 4,540 tons in 2001.
Open General License (OGL) imports are the only significant source of supply to the Indian market.
Non-duty paid silver for the export sector rose sharply in 2002, up by close to 200% year-on-year to 150 tons.
Around 50% of India's silver requirements last year were met through imports of Chinese silver and other important sources of supply being UK, CIS, Australia and Dubai.
Indian industrial demand in 2002 is estimated at 1375 tons down by 13 % from 1,579 tons in 2001. In spite of this fall, India is still one of the largest users of silver in the world, ranking alongside Industrial giants like Japan and the United States.
By contrast with United States and Japan, Indian industrial offtake for fabrication in hardcore industrial applications like electronics and brazing alloys accounts for only 15 % and the rest being for foils for use in the decorative covering of food, plating of Jewellery and silverware and jari.
In India silver price volatility is also an important determinant of silver demand as it is for gold.

World Markets

London Bullion Market is the global hub of OTC (Over-The-Counter) trading in silver.
Comex futures in New York is where most fund activity is focused

Frequency Distribution of Silver London Fixing Volatility from 1995 till date

Percentage Change	> 7%	5-7%	3-5%	< 3%
Daily
Number of times	7	10	85	2086
Percentage times	0.3	0.5	3.9	95.3
Weekly
Number of times	9	15	50	363
Percentage times	21	3.4	11.4	83.1

Biggest Price Movement since 1995

Between February 4 - 6, 1998, daily prices rocketed by 22.3%, as on a noted US financier had accumulated nearly 130 ounces of physical silver.
Note: Post September 1999 daily silver prices have not shown more than 5% movement once and weekly silver prices only once.

Commodities - GOLD

A metal is deemed to be precious if it is rare. The discovery of new sources of ore or improvements in mining or refining processes may cause the value of a precious metal to diminish. The status of a "precious" metal can also be determined by high demand or market value. Precious metals in bulk form are known as bullion, and are traded oncommodity markets. Bullion metals may be cast into ingots, or minted into coins. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money.

GOLD

Gold is the oldest precious metal known to man and for thousands of years it has been valued as a global currency, a commodity, an investment and simply an object of beauty.

Major Characteristics

Gold is unique as it is both a commodity and a monetary asset.
Its stability and high value makes it virtually indestructible and ensures that it is almost always recovered and recycled.
There is no true consumption of gold in the economic sense as the stock of gold remains essentially constant while ownership shifts from one party to another.
Although gold mine production is relatively inelastic, recycled gold (or scrap) ensures there is a potential source of easily traded supply when needed, and this helps to stabilise gold price.
Economic forces that determine the price of gold are different from, and in many cases opposed to the forces that influence most financial assets.

Global Supply Demand Scenario

The total above ground stocks of gold is estimated to be around 1,63,000 tonnes by Gold Fields Minerals Services (GFMS) as on end of 2008
Out of this total stock, 51% is estimated to be present as jewellery, 18% as official reserves, 17% held as investment, 12% used for industrial purposes and 2% is unaccounted for.
Jewellery accounts for almost two-thirds of annual gold demand with investment and industry being the other main drivers. The total annual global demand for gold has averaged 3530 tonnes in the last three years (2005 - 2008). However, it is expected to dip slightly in 2009, owing to the sharp rise in prices.
Five countries, viz., India, China, USA, Turkey, Saudi Arabia and UAE account for above 60% of gold demand, with each market driven by a different set of socio-economic and cultural factors.
The total global mine production is relatively stable, averaging approximately 2,455 tonnes per year over the last three years. Recycling of old gold scrap and official sector sales are the other major sources of supply, which have averaged 1084 tonnes and 378 tonnes in the last three years.
South Africa has been a major gold producer since 1880s and it is estimated that about 50% of all gold ever produced has come from this nation. While, during the early 1980's it produced about 1000 tonnes, the output in 2007 dropped to just 272 tonnes.
China with a production of 276 tonnes, overtook South Africa as the world's largest gold producer in 2007 for the first time since 1905 that South Africa has not been the largest. The other major producers are USA, Australia, Russia and Peru.

World Gold Markets OTC markets at London (LBMA), New York and Zurich
Gold derivative exchanges at New York – CME (COMEX), Tokyo (TOCOM), Mumbai (MCX)
Istanbul, Dubai, Hong Kong and Singapore are doorways to important consuming regions

Indian Gold Market

India is the world's largest consumer of gold. Indians normally buy about 25 per cent of the world's gold, purchasing around 700 - 750 tonnes of gold every year.
However, the sharp price increase in 2008 and 2009 has impacted demand with total demand in 2008 dipping to 660 tonnes. It is further expected to shrink in 2009 with demand in first three quarters of 2009 totaling only around 265 tonnes against 553.5 tonnes in the same period of the previous year.
As India's domestic primary production of gold is very less, at around 2-3 tonnes a year, the country imports most of its domestic requirement.
Thus, India is also the largest importer of the yellow metal and has averaged imports of around 600 tonnes a year. However, 2008 imports dipped to around 400 tonnes of gold and it is further expected to dip to around 200-220 tonnes in 2009 owing to high prices.
India's gold demand is firmly embedded in cultural and religious traditions. It is also valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits.
Gold hoarding tendency is well engrained in the Indian society and unofficial stocks held by Indians is estimated to be well above 15,000 tonnes, which is around 9% of the total global gold stocks.
Domestic consumption is dictated by monsoon, harvest and marriage season. Indian jewellery offtake is sensitive to price increases and even more so to volatility.
In the cities gold is facing competition from the stock market and a wide range of consumer goods.
Facilities for refining, assaying, making them into standard bars, coins in India, as compared to the rest of the world, are insignificant, both qualitatively and quantitatively.
In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewellers and exporters. At present, 13 banks are active in the import of gold. This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8.5 percent in 2001.