It appears the PGM market has caught a bid this week as all
three metals; platinum, palladium and rhodium finished the week strong.
Expected global auto sales figures provided by Scotiabank
have undoubtedly placed a positive note for the PGM space. Their analysis is
predicting total worldwide auto sales to reach 72.12 million vehicles this
year, an increase of 5% over last year. Strong sales figures in the U.S. are a
driver of the gain but they also point out that auto sales in China increased
8.4% for the first half of the year and Canada is expected to break an all-time
record this year with 2 million cars sold. Given the supply and demand dynamics
that we have written
about in the past, Scotiabank anticipates upside for the PGM space looking
forward with a greater emphasis on palladium.
Officials from Russia and South Africa met recently to discuss
price stability in the market. These two nations produce a large supply of
the world’s PGM product with close to 70% of platinum coming from South Africa
and nearly 40% of the world’s palladium supply stemming from Russia. The
outcome of the talks have resulted in continued conferences in the first half
of next year, “to collaborate on technology development and jointly exploring
new applications for the metal” according to Phuti Mabelebele, a spokeswoman
for South Africa’s mines ministry.
What I find exceptionally interesting is the formation of
the World Platinum Investment Council (WPIC). This is a consortium of
the six largest platinum producers worldwide with the explicit focus on
assisting, “high
net worth and retail investors gain a better understanding of the platinum
investment opportunity through the provision of independent data, information
and insight.”
I have two roles when
approaching the PGM space. My primary role is running the hedge book for recyclers
of PGM, notably AAA Catalytic Recycling Inc., tracking the ounces and
appropriate pricing in the spent catalytic converter space to maintain margins.
This role demands a shorter term focus on the day to day fluctuations in an
attempt to shelter the recycling facility from as much commodity risk as
possible.
That said, the investor in me looks at the PGM space and
more specifically platinum prices and realizes this is a major contrarian
opportunity that will pay off handsomely over the next several years. It is for
this reason that I expect to be launching a fund specifically designed to buy
and carry the physical metals extracted from the recycling space at the start
of next year. This investor believes the WPIC initiative is well timed and will
be extremely beneficial as we head into 2015.
Suggested Reading
Slightly off the
beaten path
While I’m not following gold as much as the PGM group, there
has been interesting developments within the space that are worth mentioning
and can have an impact on gold prices. On November 30, the Swiss will be
heading to the polls to vote on the Swiss gold referendum. Should the
referendum pass, it will require the Swiss National Bank to boost their gold
holdings to 20% of all assets, up from 7.7% currently. They will repatriate 30%
of their gold holdings abroad and will have restrictions on the sale of the
gold held in reserve. One would imagine this would have a positive effect on
gold prices and has certainly added a bout of volatility
to the yellow stuff.
Zero Hedge has done a great job breaking down the story as
it unfolds.
Joseph S. Kalinowski, CFA
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