What's Up With Russia?

It is clear to me that Vladimir Putin is fully aware of the pivotal role Russia plays in the platinum group metals market, and of the fact that Russia is THE swing producer and as a result, has enormous control over the world economy. Why? Because in the absence of the platinum group metals (PGMs), namely platinum, palladium, rhodium, ruthenium, iridium and osmium, the world's production lines, throughout the military and civilian economies, would come to a halt.

Now, I am in fact, not expecting that the PGMs will be unavailable; rather I am expecting they will be available, but at higher and higher prices. Russia, has been a very responsible counter party in the PGM marketplace, always acting professionally, and seeking to actually maintain stability in the PGM market. PGMs are a significant export for Russia, and the business managers there understand that it is important to maintain not only availability but pricing that isn't disruptive to it's buyers. 

While this is, I think, the Russian business philosophy in this arena, not even the Russians control the dynamics in the PGMs, and ultimately, my view is that the supply of these critical metals is so small that demand from investors, industrial users seeking to stockpile, and governments finally recognizing that their strategic reserves of these metals (if any) are sorely lacking, will lead to dramatically higher prices.

Having addressed the business parameters within Russia, it remains the case that politically, Russia has a remarkable grip on Western economies. As noted, Putin is fully aware of this, and as much as I don't expect, within the normal course, for political action restricting supply, the West is exposed. While Putin knows this scenario, I would bet that Washington DC lacks the true perspective of our exposure as a country. 

I for one, believe the West has a far better upside in coordinating with Russia on so many fronts, within the military establishment, in space, in our fight against terror, than we do in thinking of Russia as an enemy, which to me is a dated perspective. Obviously there are rules of the road, which include not interfering in our elections.... but the enlightened approach is to have a cooperative relationship with Russia that recognizes that on most fronts, we have mutuality. It is in fact, a far, far cry from where we were during the cold war, and it would be better if the rhetoric on the political stage recognized this mutuality. 

Of course, the same does apply to China, a country that in not too many years will be the largest economy on earth, and where friendly cooperation is obviously the choice rather than confrontation. Here too, there are certain requirements, and opening markets, not stealing our intellectual property, and managing the opioid problem, are basic ground rules of our time for civilized, mutually rich, relationships. 

What does all of this have to do with the PGMs? Well, simply identifying Russia's controlling position is relevant, but beyond that, a growing world economy, including the increasingly stringent auto emission standards, will lead to more and more demand for the PGMs.

It is interesting for me, and I think revealing, to read the Russian perspective. For example, on November 18, 2019, BNE Intellinews reported in an article by Ben Aris, that VTB Capital has increased its 2020 price objective for Norilsk Nickel (NorNik) by 25%. Norilsk is the world's largest palladium miner, and the primary owner of Russia's massive PGM reserves. VTB Capital is a Russian investment bank, and their expected increase in the price of NorNik is based on "anticipation of a spike in the prices of nickel, palladium, and other platinum group metals next year as countries around the world scramble to cut CO2 emissions in what is shaping up to be a super climate year." Coming from a Russian investment bank, that view has a bit more substance to me than a random market call.

Let me give you some other headlines of articles that have appeared on RT.Com, a primary Russian news bureau:

Rising palladium demand tightens Russia's hold on precious metal mining, 2/26/19

Russia & South Africa look to corner platinum metals market, 11/25/18

Russia's $75 trillion in resources is why sanctions are impossible, 12/31/18

Russia to dominate world's platinum & palladium production with new Arctic project, 11/19/19

As much as all of this is pablum to Vladimir Putin, I think it is far less understood within the political corridors of Washington, DC, and by the world's investors.


Leave a comment