Two Picks to Play Palladium
09/16/2014 9:00 am EST
Palladium is a rare platinum group metal that's set to do well—but isn't yet onto many investors' radars—yet. It should be, as it is hard to imagine a more bullish outlook for this exclusive commodity, asserts Peter Krauth in Money Morning.
Palladium—like platinum—has exceptional pollution-fighting properties. That's why they're used in nearly all catalytic converters, the auto part that reduces gasoline and diesel engine pollution.
Global car sales gained 4% in the first half of 2014. And they're expected to set a new record high this year. China’s the main contributor to these gains, with sales expected to be 15% higher in 2014.
Why does this matter? According to sustainable technology products and service provider Johnson Matthey, we'll see a shortfall of 1.22 million ounces of platinum, the largest deficit they've seen since they began tracking this data in 1975.
Numerous factors are contributing to this major shortfall, and they're easy to spot. South African platinum miners only recently ended a five-month strike, their longest ever; South African production will drop 29% this year as those mines slowly return to pre-strike output levels.
Russia is another major player in the platinum market and its problems only compound the squeeze on the market.
Rick Rule, the renowned resource expert, believes Russia's supply of PGMs is at serious risk thanks to decreasing ore grades and its new mines could be as far off as ten years from coming online.
On a more immediate basis, sanctions imposed on Russia may limit supply to the West, also pushing prices up.
To benefit from this trend, consider the ETFS Physical Platinum Shares ETF (PPLT). It does a good job of tracking the price of physical platinum prices and is physically backed by allocated metal. Platinum is in a classic upward trend channel that's establishing higher lows and higher highs.
For an even better pick, have a look at Platinum Group Metals Limited USA (PLG). The company is currently building the WBJV Project 1 Platinum Mine in the heart of world platinum production: South Africa's Bushveld Complex.
PLG will start producing next year, and will ramp up to 275,000 ounces per year from its high grade/near surface deposit. The company has a resource of 29 million equivalent ounces, and major shareholders include Blackrock, Liberty Mutual, and Franklin Templeton.
The bottom line is demand for platinum is heating up while overall supply is forecast to be decreasing. The platinum market is expected to witness its largest deficit ever this year and perhaps for several years to come.
All while two of the world's largest producing nations, South Africa and Russia, are contending with serious ongoing supply challenges.
Which all adds up for platinum as an investment pick with great profit potential and the legs to carry it for an extended profit run.
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