Prospects Of Platinum & Palladium In 2013 And Beyond

Platinum and palladium became very hot in 2013.  The prices have gone much higher in the past couple of weeks, to the extent that they are really catching the attention on a global basis. Interestingly, this happens at a time when gold and silver are trading lower. The sentiment in the gold and silver versus platinum and palladium is reaching extremes, as shown in the latest sentimenTrader.com indicator:

gold_silver_platinum_palladium_sentiment_February_2013

David Smith from The Morgan Report said in a recent interview: “Platinum and palladium often start a move before gold and silver.” He continues: “I look at platinum and palladium as an early indication of what gold and silver will do when they break out.”

Although platinum and palladium look overheated and a temporary correction is due, the expectations of both metals are great. Compared to gold and silver, the two less shiny metals are far more subject to supply and demand. They have their own drivers and dynamics which have been summarized by Minyanville:

Platinum is called a precious metal, but it is really an industrial material. Just 8% of world production is used for speculation, according to market authority Johnson Matthey. Jewelry accounts for 29%, and the remaining 63% is devoured by manufacturing. More than half of that is consumed by auto manufacturers who use platinum and its rarer sister palladium to build catalytic converters. So the platinum market runs on pretty transparent fundamentals. If you want to judge where demand is heading, look at car sales, and Chinese car sales in particular. It happens that Chinese car sales have been kicking butt for the past six months after a lackluster previous two years. Unit purchases in the No. 2 economy jumped fully 50% between July and December, then climbed another 9% in January, according to China Daily.

Platinum supply is still easier to understand than demand. It all depends, more or less, on South Africa, which accounts for three-quarters of the world’s output. You may have heard that South African platinum mines experienced a wave of wildcat strikes last year, some of which escalated into fatal confrontations between miners and police.

A much more detailed analysis of the supply and demand situation was provided by Sprott in their latest market commentary Platinum & Palladium’s Breakout Year (must read for in-depth insights). From their summary:

Our interest in the space was ignited by a client’s request to assess investment opportunities in the debt and equity of Platinum Group Metal (PGM) mining companies – an exercise that came up almost completely dry. As long-time resource equity investors, we are familiar with the mining industry’s supply/demand cyclicality and the impact it has on commodity prices. Looking more closely at the PGM miners, the platinum and palladium industry reminds us of the uranium industry back in 2003. […] Platinum and palladium exposure appears to be best gained through the metals themselves… hence the launch of the Sprott Physical Platinum & Palladium Trust this past December (NYSE Arca: SPPP, TSX: PPT.U).

We highly recommend to keep a very close eye on platinum and palladium, in 2013 and beyond. For additional recommended readings:

Sprott: Platinum & Palladium’s Breakout Year
David Smith from The Morgan Report: Keep your Sights on Platinum and Palladium

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