Visualizing Platinum & Palladium's Place In The World

Tyler Durden's picture

The platinum group of metals (PGMs) have received some perhaps unwarranted attention in recent weeks as the 'coin' idiocy came and went; but, it is noteworthy, as Eric Sprott points out that with demand rising and supply under pressure, the outlook for investment in physical platinum and palladium is increasingly compelling. The following infographic (and various supply and demand dynamics) provides a succinct picture of what these metals are used for, where they are produced, and the supply/demand imbalances.

 

Source: Sprott Physical Bullion Trusts

Reasons To Own Platinum and Palladium

SUPPLY

1. PGMs have a high supply risk.

In the British Geological Survey's Risk List 2012, the platinum group of metals (PGMs), of which platinum and palladium are widely viewed as the most significant, received a high supply risk index based on the list's seven criteria: scarcity in the Earth's crust; production concentration-location of principal producers and contribution to global supply; reserve distribution-global distribution of reserves; recycling rate; substitutability; governance (top producing nation); and governance (top reserve-hosting nation).

2. Overall global supplies of platinum and palladium are expected to decrease substantially in 2012, resulting in supply deficits.

A substantial reduction in primary and secondary supply is expected to move the platinum and palladium market from surplus to deficit in 2012, according to the Johnson Matthey Platinum 2012 Interim Review. Gross demand for platinum is predicted to remain firm, however, severe disruptions to platinum mining are expected to result in a 10% drop in global mine production of platinum. The report also estimates an 11% decline in supplies from recycling. Together, these factors are expected to result in an overall 10% decline in worldwide platinum supplies and a deficit of 400,000 oz. Gross demand for palladium is predicted to increase 15%. However, both mine production and recycling are expected to contract by 4% each, and stock sales by more than two thirds, resulting in a deficit of 915,000 oz.

3. Production is highly concentrated in only two countries

Unlike many other metals that are found in numerous regions, the majority of platinum and palladium production is concentrated in South Africa and Russia, which combined to account for 88% of platinum production and 80% of palladium production in 2011.

4. Widespread labour disruption, mine closures and other issues are negatively impacting the supply of platinum and palladium from South Africa, which produced more than half of the supply of the metals in 2011.

Platinum supplies from South Africa, which accounted for 75% of global production in 2011, are projected to fall to an 11-year low in 2012, declining 19% from the peak in 2006. The country is also the second largest producer of palladium but supplies of this metal are projected to drop more than 6% in 2012. A myriad of issues in the country are lowering cash profit margins and resulting in less supply of the metals, including labour disputes, closure of marginal operations, declining ore grades, , and progressively lower depths required for mining operations in some locations. Additionally, the availability and cost of electrical power continues to be precarious and the uncertain political environment, including increased rhetoric and political pressure regarding possible nationalization and/or ''super'' taxation, could reduce the ability and willingness of industry participants to make the necessary investments to sustain current supply.

5. Dwindling stockpiles of palladium in Russia are nearing depletion and may not be able to offset declines in mine production.

Russia is the largest source of palladium, through both mining and state sales of stockpiles. However, the supply of the metal from existing stockpiles is projected to drop 68% in 2012 and is expected to account for just 3% of global supply. Additionally, mining supply is projected to drop by approximately 4% in 2012 and active mines in the Norilsk region of Russia are showing declining grades of ore extracted, which suggest that production levels at these mines may have peaked..

6. Alternative sources of new supply for platinum and palladium are not readily available.

North America accounted for just over 5% and 13% of global mine production of platinum and palladium, respectively, in 2011. However, production of both metals in the region is projected to decline slightly in 2012. The only region expected to increase platinum and palladium production in 2012 is Zimbabwe, though it remains a relatively small producer of the metals. However, increasing political tensions and threats over security of tenure in the country has deterred new investment.

7. The majority of platinum and palladium producers are operating at a loss.

The cash costs and capital expenditures required to mine a 3E PGM oz (~60% platinum, ~30% palladium, and ~10% rhodium) have risen to a level such that most mine production is already cash flow negative.  Only five companies are slightly cash margin positive after accounting for capital expenditures. A 15-year trend of declining ore grades and anticipated labour settlements with increased wages are expected to further increase cost and stress balance sheets for these producers.

DEMAND

8. There are diverse sources of demand for platinum and palladium.

More than a quarter of the demand for platinum and palladium is from non-autocatalyst industrial uses. For platinum, sectors utilizing the metal include petroleum refining, electrical, glass manufacturing, medical, biomedical and dental, and other manufacturing such as turbines. For palladium, demand comes from the electronics (as resistors and capacitors in circuit boards), dental and chemical industries. The metals are also used in jewelry, particularly platinum which is sought after for its rarity, silvery-white lustre and resistance to wear and tarnish.

9. More stringent vehicle emission standards continue to drive demand growth for platinum/palladium in autocatalysts.

Due to their powerful catalytic properties, platinum and palladium are essential components in catalytic converters in automobiles as they form the surface catalyst upon which the critical chemical reaction converting engine exhaust emissions into neutral compounds occurs, resulting in the reduction of the toxic components from combustion. There is no widely used substitute for the metals in autocatalysts and emission standards are becoming increasingly stringent across Asia increasing platinum/palladium loadings per vehicle. Demand for palladium in autocatalysts is expected to grow by 7% to an all-time high of 6.5 million oz in 2012, resulting in a combined 5% increase in autocatalyst demand for the two metals to 9.6 million ounces. For 2013, automotive demand for palladium is anticipated to grow by 24% and for platinum by 13%.

10. China is an increasingly important demand driver for both platinum and palladium.

China recently surpassed the U.S. to become the largest auto maker globally and auto sales are projected to grow at 5% per annum over the next three years, according to IHS Global.   Palladium loadings per gasoline powered vehicle produced in China have approximately tripled over the past decade and in 2010, China adopted the Euro IV emission standard, which is expected to materially increase the PGM loadings in Chinese-produced vehicles. The country's demand for platinum in jewelry, particularly among the younger generation, comprised close to 70% of the global share in 2011 and is growing. From 2006 to 2011, platinum purchases doubled on the Shanghai Exchange.

11. Strong long-term annualized returns and uncertainty about the global financial system has the potential to take more supply of platinum and palladium off the market.

The returns on both platinum and palladium outpaced the S&P 500 Total Return Index in the ten years leading up to November 21, 2012, according to Bloomberg. The Manager of the Trust believes investor demand, through ETFs and funds acquiring the physical bullion, may increase as investors seek to protect their portfolios from inflation, deflation, economic slowdown and currency devaluation.

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Silver Bug's picture

Precious metals truly are the place to be this decade and perhaps even longer.

 

http://ericsprott.blogspot.ca/

trav777's picture

PGM bugs can show way more class than dumbass silverbugz

DoChenRollingBearing's picture

Pt and Pd are for optimists and diversification.

Osmium is for hobbyists...

Acidtest Dummy's picture

Pt is the "getter done" precious metal. Where gold (Au) wants to be in larger masses (see the Golden Affinity Theory) Pt is the impatient metal. It is nobel, does not react, (except with aqua regia,) time doesn't change it and therefore it is "bored."

     When Pt is present chemical reactions are accelerated. Pt wants action and complete reactions.

     Sorry I took so long to get back to you about that Bearing.

     -Acidtest Dummy, Psychologist of Precious Metals

DoChenRollingBearing's picture

I bow to your knowledge and kneel at your feet, Doctor.

Acidtest Dummy's picture

Psychologist cannot prescribe drugs, has not attended medical school. You must be thinking "psychiatrist."

GetZeeGold's picture

 

 

-Acidtest Dummy, Psychologist of Precious Metals

 

I see him for all my mental health needs.....sure he can't prescribe drugs.....but he can reco them.

Bay of Pigs's picture

Fuck you Trav you worthless cocksucker.

samcontrol's picture

I really need a " paper " SILVER pick..

I have no choice.. I have some pslv..
Out of my head i have looked over and over at...
slw,ag,paas,slv and a few others..
What is the BEST "paper" silver play ?

zorba THE GREEK's picture

Hopefully my platinum coins of U.S. mintage will be worth more than I paid for them

since the mintage of said coins is less than 1200. Good things come to those who are patient. 

hungrydweller's picture

BIG ++++:

Their sale is not reportable on a 1099 by bullion dealers!

Son of Loki's picture

Long oil, platinum, ammo and Japanese diapers.

dubbleoj's picture

actually koreans buy their diapers in japan cuz theyre so damn expensive in seoul. even tho population will follow the same track as japan, for the time being people will still have one spoiled baby because your job promotion is highly contingent on whether or not you are married with kids. ahhh tradition.

lolmao500's picture

Bullish :

https://twitter.com/W7VOA

CPRF statement directed at says "'sanctions' mean a war and a declaration of war against us."

MinnesotaMD's picture

Loved it when The Doors did that live show at the Palladium. After seeing that show I knew where things were going and I shorted Jim Morrison and was able to pay for school.

clara-to-market's picture

Platinum?

Don't know much about it.

We're probably better off sticking to gold.

Gold, bitches.

http://angrysinner.blogspot.kr/2013/01/yesterday-dragon-lady-made-egg-rolls.html

Temporalist's picture

A few Cambridge House Vancouver Resource Investment Conference 2013 video interviews:

 

Rick Rule (Sprott) interviewed by Investing News Network (INN)

http://www.youtube.com/watch?v=mJlRXisGpQQ

 

America Is Too Political Now (Rick Rule)

http://www.youtube.com/watch?v=b6g4lzJvkEg

 

GATA's Chris Powell (I'd rate this a must see)

http://www.youtube.com/watch?v=yt8VJHmsG50

 

Get far away from USA...its collapse will be messy: Jeff Berwick

http://www.youtube.com/watch?v=5zD7xR0DGuE

 

The Buzz about Silver (David Smith)

http://www.youtube.com/watch?v=XJ-M3vxyYSk

 

Peter Schiff: Coming debt crisis will make 2008 look like a Sunday school picnic

http://www.youtube.com/watch?v=5ZTlsDepd08

 

Peter Spina: Inflation is coming, get ready!

http://www.youtube.com/watch?v=HnT4tDhwbo8

Temporalist's picture
Gold Manipulation and Auditing the Fed! Bill Murphy (GATA)

https://www.youtube.com/watch?v=t6Yw9B_M_zs

Room 101's picture

Great set of vids.  Thanks for posting them. 

lenitivelea's picture

A metal trust thinks I should invest in metals? How fascinating!

Bunga Bunga's picture

When this coin comes out, a car will be worth some trillion dollars.

joego1's picture

For one once of unobtanium I could rule the world.

Dixie Rect's picture

Long Jane Mansfield and Marilyn Monroe

jonjon831983's picture

The Swiss are getting closer to their repatriation.  Apparently, they're still off by 10,000 supporters.

http://www.silverdoctors.com/gold-bank-run-accelerating-now-the-swiss-wa...

 

 

March 2012: http://www.zerohedge.com/news/switzerland-wants-its-gold-back-new-york-fed

Acidtest Dummy's picture

Interesting thing happened to palladium (Pd) back in the '90s, price went from ~$200 per troy oz to ~$1200 in like less than a year. (Exact dates, prices and time are not details an Acidtest Dummy cares much about.) Anyway Pds price went crazy and stayed high for months or longer, what the hell? Nobody knew why.... Then Ford Motor Co. took a $3_b_ writedown, remember in the Nineties a billion dollars could have bought something. Their story, a commodities buyer, who was not a precious metals expert, was buying Pd without noticing what he was doing to the market. Too bad so sad, price dropped to ~$150PTO and has risen more less steadly ever since.

Womb Service's picture

Not as good as physical, but might be a good way to get Pt exposure. Here is a pretty good shit kicked (aren't they all) junior:

Duluth Metals (TSX: DM)

125 million shares I/O with a 60% carried interest to economic feasibility. JV with a major, Antofagasta. Potentially 100 years of mine life. They are still exploring, and may end up having the biggest mine in the world.

Indicated & Inferred:
9.1 million oz Platinum
20.2 million oz Palladium
4.7 million oz Gold
25.5 billion lbs Copper
8.8 billion lbs nickel

Located in NA (Minnesota). Only thing stopping it so far is the greenies. Maybe Silver Wheaton would be interested in streaming the Gold to pay for mine development.

Of course, you would have to be a brave soul to acquire any paper claim in this environment.

samcontrol's picture

Stupid question...why no silver?

AgAu_man's picture

Crap, now I can't buy either on the cheap anymore!

Last spring I started tracking in Excel the Pt to Au ratios and realized that Pt wad totally underpriced, and a better deal than Au. Given its greater rarity and supply bottlenecks (read: Risk!), I promptly Got Some. It did a lot better than my Ag or Au.

Something to be said for DIVERSIFICATION.

p.s. Unlike Au, good luck in trying to salt or fake Pt!

AgAu_man's picture

To the THINKING and RATIONAL person all this Gold-backed currency is a bit of a lame argument by one-trick pony academics:

A hard-currency would, could or perhaps 'should' be backed by a BASKET OF PRECIOUS METALS. That would make PM manipulation a little tougher, insofar a currency could change the mix to mitigate foreign dirty tricks. 'Ideally'.

Also as a private investor, having s basket of PM bullion and ETFs, gives you all kinds of flexibility, rather than betting, hoping and praying that the one-trick metal will save your bacon or cure all your financial woes.

Dewey Cheatum Howe's picture

Interesting thought my personal take is basket of commodities with PMs being maybe 1/4 of that equation. Reason being is with a diverse basket if you pick the spread right the currency should be able to grow and contract naturally based on the goods and services while always holding an absolute value regardless. Stuff like gold and silver would guarantee the min value of the currency. The max value would be determined by the more availiable commodities.

polo007's picture

Here is another junior platinum miner:

Platinum Group Metals Ltd. (TSX:PTM)(NYSE MKT:PLG)

http://platinumgroupmetals.net/company/

Platinum Group Metals Ltd. is based in Vancouver, BC, Canada and Johannesburg, South Africa. Platinum Group has a solid management team with successful track records and more than 20 years in exploration, mine discovery, mine construction and mine operations.

The Company was formed in 2000 and is focused on the development of platinum operations. It holds significant mineral rights in the Bushveld Igneous Complex of South Africa, host to 80% of the World's platinum production. View a demonstration of how the Bushveld was formed.

The Company is focused on moving its first, high-grade, near-surface Western Bushveld Joint Venture (WBJV) platinum deposit to production. The issuance of the Mining Right for the project on April 4, 2012 was an important milestone, allowing the Company to move forward with its development plans for the robust project.

An updated feasibility study was completed in October of 2009. Construction of the WBJV Platinum Mine started in January 2011 with a $100M USD first phase program focused on decline construction and underground development. In August 2011 a project loan mandate was awarded for a $260M USD senior loan facility. In December 2012 the banks received credit committee approval for the loan and closing and draw down of the loan facility is now subject to the negotiation and execution of final documentation and satisfaction of conditions precedent.

Platinum Group is active in platinum exploration in South Africa and Canada. The current focus for exploration is the Waterberg discovery on the North Limb of the Bushveld Complex. The Waterberg Project is partnered with JOGMEC (Japan Oil and Gas Mineral Exploration Corporation) a state owned company.

Stock Quotes for Platinum Group Metals Ltd.:

http://tmx.quotemedia.com/getquote.php?symbols%5B%5D=PTM&symbols%5B%5D=PLG%3AUS

Monedas's picture

I propose a $500 bn Palladium coin to help pay off our debt .... to complement the Platinum $1 trillion coin !  So the treasury can make change !      Monedas     1929       Comedy Jihad World Tour