Looming Shortages = PGM Gains for You

By ,

In the past two months, strikes in South Africa have crippled the top three platinum players, and knocked 40% off of expected global PGM output. Thus, forward-thinking investors – and potential project partners – are looking for new PGM deposits far from current turmoil.

Meanwhile, due to the South Africa strikes, short term – meaning ‘now’ – PGM stockpiles are quickly declining. By the end of March (yes, this month), absolute shortages will kick in across numerous industries. Prices will begin to climb, affecting supply chains across the world. Platinum is shining, in a manner of speaking…

On the one hand, the looming shortage of PGM, and impending price movement, will benefit investors who hold physical metal or even ETFs like Sprott Physical Platinum & Palladium Trust (SPPP:NYSE). This play holds physical metal that’s on deposit in vaults in Canada and Great Britain, and basically tracks PGM pricing. There’s no vaporware with SPPP.

Looking out to the long term, however, global industry needs new supply. That, and investors want new PGM plays in politically safe jurisdictions. That’s where the spotlight is shining.

Here’s something else to consider, as South Africa stews. The ‘other’ major source of PGM for the global market, besides South Africa, is Russia.

Russia, as you surely know, is in the news due to the situation in Ukraine. There’s talk, in Western political circles, of slapping political and/or economic sanctions on Russia over the Ukraine situation.

If Russia gets hit with sanctions, there’s no telling how it could affect PGM supplies, or the merchant banking that supports paying for exports; let alone how Russia might respond – with reverse-embargoes of its own, or such. All sorts of things are possible.

Right now, I can’t predict if the US and/or European Union (EU) will slap sanctions on Russia, or the details of how things will work out. Our Western politicians come across, to me, as essentially clueless and terribly ignorant of history and strategy.

I’m inclined to think that, before too much damage occurs, cooler heads will prevail. That large Western PGM users – auto companies, chemical manufacturers, glass-makers, etc, who accelerated their platinum purchases throughout 2013 (see below) – will ‘explain’ the facts of life to the politicians. Of course, they’ll have to use short, simple words, and speak very slowly to the politicians, but that’s another discussion.

Still, the whole issue of Russia and sanctions creates uncertainty over the future supply chain for PGM. Again, the long-term solution is to develop deposits closer to home.

According to investment bank Scotia-Mocatta, the near and medium-term outlook for platinum ‘looks robust, as supply is struggling to keep up with noninvestment demand, which means that even a relatively small amount of investment can cause a supply deficit.‘ Long term, the field is wide open.

As you may know, nothing happens fast in the world of mining, let alone in the world of building mines. In general, things take years to unfold fully. But the fact is that there’s a growing scramble for new sources of PGM supply, both within South Africa – because that’s where the world’s largest confirmed resource is located – and outside, in more favourable jurisdictions.

I’m looking for more good news for PGM investors, at every level. Near term, we have looming shortages. Medium term, there’s the issue of South African strikes, and uncertainty over Russian supply. Long term, the West will have to develop its own security of supply chain. You can invest in this, and make money over the long haul

Byron King,
Contributing Editor, Money Morning

Ed note: The above article was originally published in The Daily Reckoning US.

About Byron King

Western Areas Share Price Down — China Wreaking Havoc (ASX:WSA)

It has been a rough couple of months for the share price of Western Areas Ltd [ASX:WSA]. At the time of writing, however, the WSA share price has sunk slightly, down 0.49% to trade at $2.02 per share…

MetalsTech Share Price Up and then Halts After Lithium Move (ASX:MTC)

MetalsTech Ltd [ASX:MTC] enters trading halt after announcing lithium move. At the time of writing, the MTC share price is up 41% to sit at 17 cents. what was in the MetalsTech announcement that sent its share price up?

US Stimulus Paves the Way for Commodities Boom

Almost like clockwork as the market started to wobble, the US passed more stimulus. The $1.9 trillion bills should prop up the market for the time being. There’s a subtext to this though, and it’s all about inflation

Hawkstone Mining Share Price Up on Successful Lithium Play (ASX:HWK)

The Hawkstone Mining Ltd [ASX:HWK] share price has been on a tear this year, having gained an impressive 360% since the new year. At time of writing, the HWK share price is up 15% to trade at 4.6 cents per share…

KGL Share Price Up — Taps Investors for New Copper Plans (ASX:KGL)

It seems KGL Resources Ltd [ASX:KGL], like many others, has been captivated by Dr Copper. The base metal that is renowned for its ability to pre-empt economic booms. The Share Price of KGL are up 4.35% at time of writing…

Don’t Worry for Now Says Dr Copper — Outlook for the Future of Copper

One of the best predictors of future economic growth is the price of copper because it is widely used in many different sectors. Because it gauges the health of the economy pretty well, many refer to it as Dr Copper…