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Great Article On Platinum Group Metals


I read a deeply insightful article on the PGMs by Matt Watson.

Matt does speak to how there simply is not enough palladium and rhodium to meet the demand in the growing auto market for catalysts, and the requirements for clean emissions around the world, although he indicates that in the future production will sufficiently increase.

While his analysis is insightful and exciting and, to me, unique in its depth, Matt leaves out one very critical ingredient. He does not at all address investment demand or make any suggestion of the possibility of increased industrial inventory demand or demand from governments for strategic stockpiles, all of which I expect to overwhelm the market. 

He does speak, of course, to limited supply but he doesn’t put those observations in a context that ultimately the market will find both understandable and shocking. That context is simply the remarkably small supplies of these metals all in the face of inexorable demand requirements for so many functions of the modern civilian and military economies. Platinum alone, for example, has annual production including recycling of 8,000,000 ounces, worth only $7 billion which is a tiny pebble in the flows of money available to investors, industry, governments and the world at large.

So I DISAGREE with Matt’s view that 5 years or so down the road (after years of shortages without possibility of immediate relief) the planned increased production at Nornickel and in Canada will lead to a palladium surplus. I don’t see a chance in heaven or hell :-) for that to happen given demand that I reference above.

Another part of this market that continues to amaze me is the price premium of palladium over platinum. Yes I felt that substitution would need to take place when the spread was much lower than it is today. But the process takes time. Ultimately there will be more demand for platinum in the autocatalyst market with some substitution, but that demand will still not disrupt the ongoing requirements for palladium.

As an aside ... my observation on recent market moves: the drop in palladium and platinum over the past few days is strictly technical and not unexpected. Markets never move in a total straight line. But the fundamentals are very powerful for palladium, rhodium, platinum as well as all of the platinum group metals and prices ultimately will reflect demand and lack of supply along with absence of substitutes for needs that must be met.

 

Here is the link:

https://www.kitco.com/commentaries/2019-12-20/Clean-energy-might-be-the-future-but-there-is-no-game-plan-how-the-PGMs-stand-to-break-out.html


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