PGM Update

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.

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.

Everything You Need to Know About The Swiss Gold Referendum – Zero Hedge

Joseph S. Kalinowski, CFA