Physical ETF holdings: quantifying investment interest :Macquarie Research,

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Commodities Comment
Physical ETF holdings: quantifying
investment interest
Feature article
 ETF holdings of precious metals have swung wildly in the case of palladium
and silver, with investment in gold and, surprisingly, platinum proving to be
stickier. If markets are to stabilise, it seems there is more upside in palladium
and silver given that an end to investor selling will cut supply to physical
markets.
Latest news
 LME base metals prices were up across the board in trading on Thursday,
rising on relief that some progress appeared to be made in resolving the
eurozone’s sovereign debt and banking crisis. Copper closed up by 6.1% at
$8,143/t cash. Precious metals prices also rose, with palladium adding 2.7%.
 US GDP growth was close to expectations on the advance 3Q estimate, rising
2.5% at a seasonally adjusted annualised rate. Encouragingly, final sales rose
3.2% and business investment also accelerated, while a reduction in
inventories took 1ppt off growth in the quarter.
 High frequency data from China's Iron and Steel Association suggest crude
steel output dropped 6.9% in the middle of October from the start of the
month, to an implied run rate of 657mt on an annualised basis. While this data
series can be volatile, it is usually a good indication of the direction of
production. Media reports and our own recent conversations with mills have
indicated that mills are slowing output in response to falling prices and rising
inventory at both the mills and at traders. Chinese steel prices staged a minor
recovery this week, with spot rebar prices edging up RMB30/t (0.7%) by
Thursday. Iron ore traders are reporting an increase in enquiries from mills
over the last few days, although this has yet to lead to an increase in
bookings.
 Vale recorded a 6%YoY rise in iron production in 3Q11. With exports rising
only 2% YoY and domestic pig iron production up 1.3% YoY on the same
comparison, the strong growth in production implies a buildup of stock. Output
at Carajas of 56.9mt in the last six months is significantly more than the
50.6mt of exports from Vale's PDM export terminal servicing northern system
production.
 Chinese domestic coal freight edged lower again this week, with the
Qinhuangdao – Guanzhou freight down to RMB48/t from RMB51/t. Easing
coastal coal freight is a further sign that Chinese domestic markets look
adequately supplied for now.
 Canada’s Teck announced a reduction in its guidance of copper sales for
2011 with its latest results for the quarter ending September. However, in
contrast to the impression given in some newswire headlines, we believe this
was the result of an expected shortfall in production from one of its mines,
leaving less material available for sale, and not due to any decline in demand.
Elsewhere, Kazakhmys noted declining copper ore grades in its latest
production report.