- Money Morning Australia

Platinum and Palladium — the Precious Metals to to Back in 2013


Written on 01 December 2012 by Dan Denning

platinum and palladium 220×220

South Africa – the post-apartheid version – is a young country as far as Nation States go. Yet today, there are doubts about whether South Africa can survive.

That’s the sentiment I get, anyway, from watching CNN or reading wire service reports. It’s hard NOT to be pessimistic when you read about the 34 people killed at Lonmin’s Marikana platinum mine in mid-August.

The deaths at Marikana were followed by widespread strikes across the platinum and gold industries.

Thousands have been fired. Production in both industries has been seriously interrupted. There are international doubts about the future of South African mining. Those doubts have weighed on share prices for gold and PGM miners.

And given these question marks about the mining industry, nationalisation, and political stability, you wouldn’t want to invest in South African precious metals stocks in this atmosphere? Or would you?

Platinum and Palladium – The Other Precious Metals

The sheer terror and fear mainstream investors might have in South Africa right now is obviously a perfect contrarian scenario.

This is one of the few chances in the last five years that you can find real quality assets mispriced because of investor perception. There is certainly a heap of political risk.

But there is also a massive opportunity. I think most people will realise that by 2013, which is why I suggest you take advantage of it now, while the opportunity remains.

What’s more, one metal I’m talking about has recently gone into a supply deficit for 2012. That deficit should grow in 2013. The stage is set for higher prices.

But what metals am I talking about in general?

The platinum group metals.

Did you know Ironman’s heart is made of palladium, not gold? Billionaire industrialist and tycoon Tony Stark may not be a real person, but he knows how to pick a valuable precious metal for its autocatalytic properties!

Industrial demand for the PGMs is a key driver of higher prices. So is their actual scarcity. And because of both factors, investment demand (via Exchange Traded Funds) could emerge in 2013 as another big catalyst for higher metals prices.

There are six different metals included in the PGM complex: platinum, palladium, rhodium, ruthenium, iridium, and osmium. The name platinum comes from the Spanish ‘platina,’ or little silver. When the Spaniards found silver in Colombia, platinum was considered an impurity and a by-product. That’s definitely not the case today.

The PGMs all have particular qualities that have made indispensable to the modern world. Platinum and palladium are especially resistant to corrosion and oxidisation.

This became important in the mid-1970s, when clean air legislation began to affect car makers in the US and Japan. The PGMs became the metal of choice for reducing pollution from motor vehicles.

Platinum and palladium are key ingredients in the construction of catalytic converters. An autocatalyst is a cylinder of honeycombed metals set inside a stainless steel canister. The entire contraption is known as a catalytic converter. But it’s the autocatalyst that we’re most interested in.

Platinum is a lot more useful for diesel engines. But for gasoline or petrol engines, platinum and palladium are interchangeable. The main determinant of which metal gets used is price.

There are other industrial uses for PGMs. But the car market is the most important. About 4.4 million ounces of 2011′s total palladium production went to the automotive market. This little fact surprised me.

Bullish Trends for the Auto Industry

That is, I wasn’t surprised that palladium is used in the automotive market. I was surprised that once you get out of the North American/European/Japanese/ Australian news bubble, the forecast for global auto sales is surprisingly robust.

The more cars that get built and shipped in the developing world, the better it is for PGM demand and prices.

Production of ‘light duty’ cars should reach 81 million units this year, according to US-based palladium producer Stillwater Mining. China is obviously leading the charge here. In 2009, China over-took the US as the world’s largest automaker.

It should produce around 20 million cars this year.

When I spoke with a full time PGM analyst in South Africa, I was struck by how sanguine he was regarding the car market. It’s growing in places like Russia, China, Brazil, and India.

It’s a pure BRICs story. He assured me that once you get outside the bubble of the industrialised world, the car market is looking bullish.

I remain sceptical (by nature). But the drive to toward tighter emission regulations (for cleaner air) in all the world’s economies supports platinum and palladium demand regardless of the number of cars produced.

Precious Metals to Watch in 2013

Other factors lead me to believe 2013 will be a good year for PGMs, and palladium in particular. Supply is already in deficit. Above ground stockpiles are being run down.

Investment demand from ETFs was around 400,000 ounces in 2012, and will increase to half a million ounces in 2013. And jewellery demand has emerged as a new factor as well.

Keep in mind that platinum and palladium production occur at the same time from the same ore bodies in almost all cases. Palladium is relatively abundant. In fact it’s two times more abundant than gold in the earth’s crust.

But the trouble is finding it in large enough concentrations to mine it economically. I can’t emphasize enough this enough. This is the single biggest reason I expect palladium prices to head higher next year

South Africa will remain a critical supplier of them no matter what. If South African production is interrupted, it will almost surely lead to higher prices.

So how to profit?

Bullion is worth a look. So are ETF’s. Then there’s the much riskier mining stocks.

You have an industry under siege, a metal in supply deficit, and more geopolitical risk than you can shake a stick at. If you like buying when others are fearful, it doesn’t get any better than this.

Dan Denning
Editor, The Denning Report

From the Archives…

Why You Should Always Be Looking to Buy Small Cap Stocks
23-11-2012 – Kris Sayce

China is Now the World’s Biggest Gold Producer – and Consumer
22-11-2012 – Dominic Frisby

The Stock Market Gets Squeezed
21-11-2012 – Murray Dawes

Buy Quality Gold Stocks That Have the ‘Right Stuff’
20-11-2012 – Dr. Alex Cowie

Picking the Hot Commodity Stocks of 2013
19-11-2012 – Dr. Alex Cowie



Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...
Share

Dan Denning
Dan Denning is Editor in Chief at The Daily Reckoning and the Publisher of Port Phillip Publishing. Dan is also the investment analyst and editor of The Denning Report. His high-level, macro-economic and stock market forecasts are read by more than 35,000 high-dollar investors and fund managers in over 70 countries. If you're already a subscriber to these publications, or want to follow Dan's financial world view more closely, then we recommend you join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au


Comments are closed.



FREE INVESTMENT REPORT: The Top 5 Oversold Blue-Chip Stocks in Australia


These five Aussie stocks all have something very powerful in common…and it could see them bounce up in the coming weeks and months. For all the details download this report right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

New Frontier Investor [banner]

Openx pos2

  • ^NDX3892.496-83.57 - -2.10%
  • ^FTSE6654.89-75.22 - -1.12%
  • ^AORD5547.600-75.500 - -1.34%
  • ^AXJO5556.400-76.500 - -1.36%
  • AUDUSD=X0.9284
  • USDJPY=X102.9465

PAN

Does 18 = 14 + 4 predict literally EVERYTHING in the asset markets?
 
One man believes so.
 
And as you’ll see in this brand new video presentation, his forecasts are too numerous...and too accurate...to be the product of chance or fluke.
 

Openx pos3

Australian Small-Cap Investigator

Why your next car could use half the gas
of a new Commodore


It’s all thanks to Honda’s amazing
breakthrough…and could also send these shares
up 159% by February 2015


Details HERE

Openx pos4

Diggers and Drillers

After three years in the doldrums…

Aussie resource stocks
are now a raging BUY
 
The last time resource stocks traded this low we saw a two and a half year rally that saw them gain 124%...
 
Now they’re getting ready to do it again. Read on to discover why…and three tiny Aussie miners that could explode up many times higher than that in 2014…click here.

TDR

Australia under Attack


Three powerful forces have come together and threaten your very way of life


Click here to learn more

Gowdie Family Wealth

Your money or your grandkids.


That’s the ultimatum one of Vern Gowdie’s former clients faced when his kids started trying to get their hands on his wealth.


This brand new report shows you how to avoid
EVER having to face such a situation yourself.


READ IT HERE.

Gold Stock leadgen

Openx pos5

The Money For Life Letter

How to Prepare for Australia’s Coming Retirement Crisis
 
Let’s face it. There are plenty of places you can go for dismal forecasts about the future.
 
Solutions, however, are much harder to find. In fact they’re practically non-existent.
 

Revolutionary Tech Investor

Introducing…
 
A NEW BREED of hyper-speed tech stocks

It took Amazon 13 years to increase 5320% in value...

These four tech ‘moon-shots’ could do it in just five

Find out how by reading this report

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

I’d find it much harder to live without the services provided by the private sector. As for the publ [Read More...]

If too many retirees leave the workforce without enough money put away in superannuation, the pensio [Read More...]

If you answer ‘yes’ to the following questions, then you’re hoarding your investments. Don’t despair [Read More...]

Most large super funds have limits on where they can invest superannuation. This means many investor [Read More...]

Russia and its supporters have nothing to gain from attacking civilians. Russia and Putin were winni [Read More...]

Global equity markets have spent months ‘shrugging off’ problems. But overnight, the weight become t [Read More...]

Four percent! Hey, that's almost like a healthy GDP growth rate. The feds were right. We were w [Read More...]

US second quarter GDP rose at a 4% annualised pace, the Federal Reserve to keep rates low for a ‘con [Read More...]

It was subprime housing debt that tipped the financial world into crisis. Now, we have subprime auto [Read More...]

The ‘recovery’ has been a fraud from the get-go. The US economy is stuck in a low-growth…semi-depres [Read More...]

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery