Tag Archives: why buy palladium

Why Buy Platinum and Palladium – part 2

why-buy-platinum

We continue looking deeper at platinum and palladium in this follow up article on why buy platinum and palladium – part 2.

The worldwide demand for platinum jewelry rose in 2012, as a result of increased demand from India and China – predominantly a consequence of lower prices. Jewelry plays an important role for platinum as it stands for 30% of total demand.

Investment demand for platinum is also increasing. Although it only makes up 6% of total demand the number is growing – last year by 6.5%.

Lower platinum prices are now creating problems for miners – similar to the situation for many gold mining companies. Most platinum miners have a production cost that is above the current price of platinum. This is a serious problem for supply – one which will force prices higher eventually.

So the case for declining platinum supply is strong, whereas the demand side will continue to be stable or even grow going forward. These are both convincing reasons for rising platinum prices going forward.

When it comes to palladium the case is much the same as with platinum. In 2012 the production deficit was at its highest since 2001, totaling 915,000 ounces.

More specifically, the current demand and supply factors for palladium are:

Supply is dwindling. Russia is the second largest palladium producer in the world and their stockpile is close to depleted. Disruption factors such as strikes and power outages in the world’s largest producer of palladium, South Africa, is also causing supply issues. Recycling levels are furthermore falling.

The demand side for palladium is strong, especially that coming from the auto industry – where autocatalytic converters saw an increase by 7% in 2012. Palladium can actually be substituted for platinum when it comes to emission control systems for gas powered motors. These are favored in India and China. In China there has furthermore quite recently been a mandate for catalytic systems for all cars in the country, which should ensure continuous demand.

The investment demand for palladium is also growing. There is still not a wide spread use of palladium in jewelry but this could change quickly.

As is evident in the list of reasons above, platinum and palladium both have similar drivers. The supply disruptions have led to deficits in both metals. These deficits won’t be corrected overnight, as the metals can’t be produced at will. The current imbalances coupled with low interest rates and central bank stimulus point to higher platinum and palladium prices going forward.

This is the base case scenario. Should supply become extremely constrained due to major problems with production in South Africa, which very well could happen, prices could skyrocket.

If there are further corrections in gold and silver it would be a good opportunity to buy platinum and palladium as a supplement to your gold and silver bullion holdings. In any case though, both platinum and palladium offers some attractive potential today.

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Why Buy Platinum and Palladium – part 1

platinum-mining

In a recent article we discussed the case for buying platinum today. In the coming two articles we’ll look deeper into this topic and also cover why palladium offers an almost equally attractive investment opportunity in today’s market. Read on below for why buy platinum and palladium today.

Platinum is both a precious metal and an industrial metal. So is palladium, albeit to a lesser degree a precious metal. In those ways platinum and palladium both are similar to silver. But there is a difference. Silver is more of a precious metal, whereas the main driver for platinum and palladium are industrial use.

Demand for platinum and palladium comes from a multitude of sources such as laboratory equipment, electrical contacts and electrodes, platinum resistance thermometers, dentistry equipment and jewelry. The largest demand source is the auto industry though, as platinum and palladium both are used in autocatalysts. Around 55% of platinum production and the lion share of palladium production were used in catalytic systems in 2012.

Since the auto industry plays such an important role in the demand for these metals one has to understand the drivers for the auto industry, to make an educated guess on the future demand factors and price drivers. The auto industry is sensitive to the general economic climate. If growth is positive then demand tends to follow and vice versa.

It’s easy to doubt the demand side as the economic climate and growth seems very fragile in many countries. To a large extent the growth is driven by money printing and artificially low interest rates in the world’s major economies. This ensures that there is a, if not growing, then at least stable demand for platinum and palladium for the time being. As we’ve discussed before money printing is not a sustainable growth factor though, so even though demand is important it’s not the sole answer to the positive drivers for these metals.

The real interesting factor is the supply side. South Africa is the world’s most important producer of platinum as it stands for 75% of annual production and 95% of known reserves – so what happens there can have a significant impact on supply. Between 2011 and 2012 global platinum production went from a surplus to a significant production deficit. The deficit in 2012 totaled 375,000 ounces.

So what are the main reasons for why maintaining current supply levels may become problematic going forward? Let’s look into the main factors for both platinum and palladium. We’ll start off with platinum.

There are ongoing issues with strikes and power outages in South Africa. Currently, there is major disagreement on worker compensation between unions and employers that are causing interruptions to production. Amplats, which is the world’s largest platinum miner is threatening to cut thousands of jobs and not follow through on establishing at least two new mines. Power outages continue to affect operations and have already forced the closure of some sites.  The end result of the unstable production conditions is reduced supply, and this is the prime reason for why platinum prices most likely will go up.

Recycling has been an important supply factor but with declining metals prices it has come down by an estimated 11% in 2012.

There is a continuous growth in demand for emission systems. Even though we’ve seen a decrease in demand from Europe and Japan, India together with China are ensuring an increase for emission systems and diesel emission control systems.  Auto-sales are furthermore rising in China and the U.S.

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