Platinum & Palladium's Breakout Year

Tyler Durden's picture

Via Sprott Physical Bullion Trusts,

Hard assets are gaining momentum once again as market participants digest the potential impact of central bank printing initiatives. After last year's record level of central bank intervention, 2013 is gearing up to be an even more prolific year on the money-printing front. Japanese Prime Minister Shinzo Abe recently unveiled Japan's tenth Quantitative Easing program to follow the country's current $224 billion stimulus announced on January 11th. The US Federal Reserve is steadily printing US$85 billion a month under its QE3 & QE4 programs, and reports indicate that the European Central Bank is close to launching its much-awaited Open Market Transaction (OMT) program to purchase European sovereign debt. It's a money-printing party and everyone's invited. Even the new Bank of England head, Mark Carney, has hinted of plans to launch more monetary stimulus.

Professional investors have noticed and are expressing concern over the consequences of concerted currency devaluation and the continuation of zero-percent interest rates. PIMCO's Bill Gross, aka "The Bond King", is now regularly touting gold and hard assets as a prudent investment in 2013. While his advice appears to have fallen on deaf ears, interest in inflation protection is once again on the rise. We continue to believe that precious metals remain the place to be invested in this environment and are always interested in different avenues with which to participate in the sector's inevitable rise.

Despite being long-time precious metals enthusiasts and active investors in gold and silver, we did not focus on "the other precious metals", platinum or palladium, until very recently. Our interest in the space was ignited by a client's request to assess investment opportunities in the debt and equity of Platinum Group Metal (PGM) mining companies - an exercise that came up almost completely dry. As long-time resource equity investors, we are familiar with the mining industry's supply/demand cyclicality and the impact it has on commodity prices. Looking more closely at the PGM miners, the platinum and palladium industry reminds us of the uranium industry back in 2003. Like uranium, platinum and palladium are crucial to a number of important industrial applications where demand for them is relatively inelastic to price. And like uranium in 2003, palladium is also marked by an opaque, but rapidly diminishing foreign supply stockpile, which had previously balanced out the market and effectively capped the price. Investors will remember that uranium proceeded to perform extremely well from 2003 onwards based on the fundamental supply/demand imbalances that ensued. Our assessment of the PGM industry has led us to believe that platinum and palladium have the potential to do the same. The one difference being, however, that whereas in uranium, where we chose to build our exposure primarily through uranium mining equities, platinum and palladium exposure appears to be best gained through the metals themselves… hence the launch of the Sprott Physical Platinum & Palladium Trust this past December (NYSE Arca: SPPP, TSX: PPT.U).


On January 15th, the world's largest platinum producer, Anglo American Platinum Ltd. (Amplats), announced plans to shut down several of its mines, resulting in the layoff of 14,000 mine workers and the reduction of approximately 400,000 ounces of annual platinum production. Given that global platinum mine production has averaged approximately 6.2 million ounces per year, the Amplats announcement is equivalent to almost 6% of global annual mine production in 2012, representing a substantial shortfall to the metal's supply/demand balance. The platinum spot price appreciated by over $30/oz following this announcement out of South Africa.

Our desire to launch the Sprott Physical Platinum & Palladium Trust was partly based on an expectation of further supply disruptions out of South Africa, which produces close to 75% of the world's annual platinum supply and 37% of the world's palladium. Union-led labour strife has become a growing concern in the country, where some 46 people were killed this past summer in violent strikes at Lonmin's platinum mine in Marikana. The labour unrest has come at a time when the industry is already suffering from persistent operating challenges and declining profit margins (see Figure A). The geological nature and depth of many of the country's platinum mines requires large amounts of manual labour, and South African mine workers have become increasingly politicized in their struggle for higher wages. At today's platinum price, however, most platinum miners are unprofitable after netting out the costs of labour, electricity and equipment required to produce the metal. Many are cash flow negative and cannot meet the workers' request for higher wages without sustaining further losses. Roger Baxter, senior executive at the Chamber of Mines of South Africa, recently stated that at least 50% of the country's platinum industry is marginal or in a loss-making position today. In addition, many of the mining operations are suffering from declining ore grades, further lowering mine output. The result has been a 25% decline in annual South African platinum production since 2006. As the Amplats decision plainly underscored, at today's prices, platinum mining in South Africa is simply no longer a profitable affair.

breakout-year-chart 1  

Source: CIBC World Markets Equity Research 2012, PGM Basket consists of Platinum (~60%), Palladium (~30%) and Rhodium (~10%)

breakout-year fig b
Source: Johnson Matthey Platinum 2012 Interim Review


The impact of South Africa's mining woes has completely shifted the platinum market's supply fundamentals over the past year, moving it from a state of oversupply in 2011 to a net supply deficit in 2012 (see Figure B). The recent developments in South Africa strongly suggest platinum's supply deficit will continue into 2013, supporting the platinum spot price and potentially moving it to much higher levels. In fact, some industry estimates have suggested the platinum market will experience a deficit as high as 760,000 ounces in 2013. Platinum miners will not be able to increase production unless the platinum price rises to a level capable of incentivizing further development.

 On the demand side, platinum has benefitted from a steady demand for auto catalysts, which constitutes the metal's primary industrial usage. Platinum and palladium both possess chemical properties that help reduce pollutants produced by gasoline and diesel engines, significantly lowering the air pollution produced by automobiles. Just as we believe the platinum price must go up to incentivize new mine production out of South Africa, the platinum price is further supported by the fact that it CAN go up, because of the relative inelasticity of the demand for its catalytic utility. The average automobile (worldwide) carries a mere $212 worth of platinum group metals per vehicle, making the impact of any platinum price increase on the total wholesale cost of an automobile relatively marginal. In China, for example, where pollution is a critical problem, air pollution levels of 300 or above regularly prompt the US embassy to issue warnings to minimize outdoor or strenuous activity. Air particulate levels in Beijing have often been above 500 recently, sometimes crossing over 700. In response, Beijing has recently tightened emissions standards for new cars to meet European Union Standards, or Euro V, starting February 1st. Increasing the platinum/palladium loadings per catalytic converter is one feasible way of directly addressing this growing problem, as the demand for automobiles in China is expected to grow steadily over the next five years. Platinum has also benefitted from increasing demand for its usage in jewelry, particularly in China, where it is considered to be superior to gold. According to refiner Johnson Matthey, China is expected to have consumed 1.92 million ounces of platinum in 2012, representing 70% of the overall global platinum jewellery consumption of 2.73 million ounces. That total is likely to increase as demand rises in other countries as well. In India, for example, platinum demand is estimated to have increased by 25% this past year, representing a new high of 100,000 ounces. As emerging markets growth continues, we expect platinum jewellery demand to increase along with it.


The palladium story is similar to that for platinum from a demand perspective, but has a different supply picture that makes it more compelling in our view. Palladium generally occurs with platinum and other PGM metals and is usually associated with nickel and copper. Like platinum, palladium's main industrial usage is in catalytic converters, most notably in gasoline engines. It is also used in jewellery, watchmaking, dentistry, surgical instruments and electrical contacts.

Almost 40% of the world's annual palladium mine supply comes from Russia, primarily through operations at Norilsk. Russia, naturally, does not provide much information on its palladium stockpiles, but various reporting agencies are able to piece together reliable estimates for annual supply and demand.

The palladium market is tight, and appears to be getting tighter. It has gone from a 1.26 million ounce surplus in 2011 to a 915,000 ounce deficit in 2012. This represents a swing of over 2 million ounces this year due to contracting supply, increasing gross demand and diminished recycling, resulting in a supply decrease of 790,000 ounces (see Figure E). If you factor in the ~200,000 ounces we purchased in our Trust, the deficit for 2012 increases to 1.15 million oz.

As bullish as we are on the supply dynamics of platinum, it is palladium that appears to be poised to move higher in the short-term. The palladium market is now in supply deficit globally and will experience a residual deficit in 2013 even after existing stockpile sales are taken into account. Russia has historically maintained a sizeable palladium stockpile which has represented a key source of supply over the past two decades. 2012 reports suggested that that stockpile was nearing depletion, with sales expected to fall below 100,000 ounces in 2013, versus the 250,000 ounces that are believed to have been sold last year. Those numbers were also supported by Swiss PGM data, where the most recent 2012 numbers show Russian palladium shipments running 72% lower than the same period in 2011. All of this was recently confirmed by Norilsk itself, when an executive conceded in an interview on November 29th (and later confirmed by industry watchers like GFMS this past January) that the supply overhang from Russian stockpiles is officially close to being depleted. If this proves to be true, it will represent a significant shift in supply, since those stockpiles were a main contributor in balancing the palladium market for the last ten years.

breakout-year fig e
Source: Johnson Matthey Platinum 2012 Interim Review

One other bullish palladium supply factor relates to the Norilsk mines themselves, which produce more palladium than the next four largest palladium producers combined. Norilsk's 2012 palladium production is expected to account for 42% of global supply. Despite higher prices, Norilsk is not expected to expand its annual palladium production for at least 10 years, because that's how long it will take to develop the new mines it requires to increase production. In addition, the existing operations are reported to be having difficulty maintaining their average 2.7 million ounces of annual production due to diminishing ore grades at depth within the ore bodies Norilsk is mining. With Russian state supplies dwindling, and Norilsk's palladium production flat at best, the supply picture in 2013 has a very high probability of tightening further. This is especially likely if South Africa's 1.5 million ounces of palladium production is also impacted by further strikes and mine shutdowns.

Palladium demand has been robust, having risen by 15% year-over-year in 2012 to 9.73 million ounces. The growth has been primarily driven by increased use in autocatalysts, the demand for which alone is forecasted to increase by 7% in 2013. Given the probability of tightening supply in the years ahead, we could potentially see a hoarding reaction by industry users as supply constraints become more pronounced. In year 2000, a similar reaction by industry users led palladium to trade over $1,000/ ounce. It is also interesting to note that palladium has the second highest amount of short positions in the futures market in relation to total annual production - second only to that for silver. The reversal of those short contracts may represent a significant source of investment demand as prices continue to rise.


The timing of the launch of the Sprott Physical Platinum & Palladium Trust has been favourable thus far. Supply problems out of South Africa will be the driving force behind platinum's price appreciation, while palladium will benefit from the depletion of Russian stockpiles and flat production from Norilsk. Both metals have the potential to see significant demand increases as the autocatalyst market benefits from growing global auto sales, which reached a record 80 million units sold in 2012.

As at February 2013, the Sprott Physical Platinum & Palladium Trust now holds 81,486 ounces of platinum and 186,098 ounces of palladium in bullion form. The Trust is structured similar to our existing Sprott Physical Gold Trust (NYSE Arca: PHYS, TSX: PHY.U) and Sprott Physical Silver Trust (NYCE Arca: PSLV, TSX PHS.U), but differs in that it initially holds approximately equal dollar amounts of platinum and palladium.

We aim to publish more updates in the coming months to analyze developments in the markets for both metals. Although platinum and palladium share gold and silver's "precious metal" categorization, they represent significantly smaller markets in terms of physical production, making them much more responsive to the supply constraints and demand increases that we foresee for both. It is also worth noting that relatively little of the total annual platinum and palladium supply actually makes it to "market" - with the vast majority sold directly to fabricators. Our Trust's December purchases represent 1.3% of 2012's platinum mine supply and almost 3% of palladium supply. If investment demand for platinum/palladium were to grow in an environment where supply is further constrained, it could indeed have a large impact on the spot price for both metals going forward.

Precious metal investors are encouraged to review platinum and palladium's unique supply/demand dynamics. We believe 2013 will be an exciting year for both metals, and that's without even considering what could happen to the precious metals sector as a whole.

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Boris Alatovkrap's picture

Boris is find good market in Cesium, but storage is problematic.

rehypothecator's picture

Cesium is sometimes catch fire, so best to is underwater storage.  

MillionDollarBoner_'s picture

I find underwater storage works for all my PMs.

Well...ever since my boating accident, anyways...;o)

Monedas's picture

My house is underwater, too .... I live in a yellow submarine !

Badabing's picture

You know you got sold out when…………….

I hope you can filter out the MSM spin and do the correct thing. Platinum hype, do you think the auto industry is recovering and putting a demand on platinum for catalytic converters?

Do you think that’s air your breathing?

Look how platinum just got whacked, don’t believe what they say.

Buy gold and silver it’s a giveaway. How do you think TPTB will pay back Germany’s gold?

All the big boys are buying gold!  

Bicycle Repairman's picture

So which of you "investors" bought Rhodium a few years ago?

Boris Alatovkrap's picture

Boris is not buy Rhodium, but is find trace of Rhodium in garden turnips. Is good, no?

DoChenRollingBearing's picture

If your house is made of monedas de oro, then it could very well sink, all that weight and all...

WmMcK's picture

OK, now that's funny. NA-K.

DoChenRollingBearing's picture

Platinum and palladium are excellent ways to diverisfy holdings in physical PMs.  If you have NO gold or silver, gold and silver is where I would start buying, as there are many good products to buy.  But, if you have an "adequate" amount of gold and silver, then Pt and Pd are very much worth a look.

Pt and Pd are a little harder to track down as well as somewhat less familiar and liquid.  Both are industrial metals in large degree.

Here's some basic information on platinum and the platinum group metals:

Manipuflation's picture

"If you have NO gold or silver, gold and silver is where I would start buying, as there are many good products to buy."

+1 Let's just leave it at that.  PGM's are cool to own but they don't hedge the same way as Au and Ag.  If Pd goes down to $150 an ounce then it is a different story but at $762 plus premiums... walk away.  Russia will never tell how much Pd is has stockpiled but it has it and likely more than anyone thinks.

DoChenRollingBearing's picture

Clearly gold is first on the menu for a PM buyer.  Some 80% by value of my PMs are gold.  But, I like the idea of diversification as well.  That is why I own silver, platinum and palladium (although Pd is just a tiny holding).

Gold is my rock (if you will).  The others are just speculations that I think will work out OK.  Gold may rocket to the moon, I am inclined to believe FOFOA, a deep-thinker on gold.  He's the best, but his writings REQUIRE lots of fairly difficult reading.

You could be right about how much Russia may have Pd stashed away.  But, I got mine at an average of +/- $400, so I am OK with my diversification.  WHile not as dramatic a rise, I am happy with my Pt too.

Still, unless one has enough to invest, yes, I would stick to gold as the BEST wealth preserver through time.  Silver next, silver is for spending in a SHTF.

Then the PGMs.

Manipuflation's picture

I agree.  For a beginner in PM's Pd and Pt are not the best choices.  The PGM's are great to look at when they are surrounded by stacks of Au and Ag.  PGM's are too dependent on the car industry and we all know about the car manufacturer's channel stuffing.  I would say the PGM complex is overbought and Sprott wants to sell.

Mr Lennon Hendrix's picture

If we are going to discuss and prognasticate on what the proper holdings of PMs should be and why....

Silver is obviously the best choice to own.  The GSR means that or every increase in gold silver should increase 3x that.  Yet if someone is going to be buying a lot (and the only way to own PMs is by storing the bullion oneself) I understand why gold and platinum would be the primary allocation.  How easy is it to store millions of dollars worth of silver?  Well it would would take a lot of space.  But there are other reasons to own gold and platinum.

Gold is the star of the group.  It also peaked production a decade ago, whereas silver and platinum have only peaked production in the last few years.  Platinum bullion is also not used commmonly as an investment.  Platinum was not used as money like gold and silver was over the last few milleniums.  It was scraped off of silver much like natural gas was flared from oil wells.  So it has not had the demand gold and silver has.

Platinum is however in short supply.  Less platinum is mined every year than gold is.  The amount of platinum mined every year would equal a 9ft cube.  That would fit in an average dining room.

Back to gold, obviously it is the rock star.  It is the only yellow colored mineralin the group, and you know people like the shiny yellow!.  Like mentioned above, it has peaked production.  It also has high investment demand.  One of the big reasons that it has high investment demand is because gold is the only PM out of the three that is used on bank balance sheets; it is heald as a reserve on the books by Central Banks (on loan from the Treasuries) and banks such as JPM, GS, etc.  This gives it buoyancy in the open market.

So those are some of the reasons, but not all.

If you want to make money, PMs are the best investment right now. 

I like buying silver, but buy what yoy want.

dunce's picture

There was a family owned casino in Vegas and back when the mob ran the town there was much skimming in the back rooms. later the business changed but the family heirs  still had financial interest in gaming. One of the heirs was a druggy and died from an OD. His girl friend and her boyfriend knew that he had built an underground vault in Pahrump, Nv. so they dug it up but it was in an empty lot between  a shopping center, a bank, a couple of gas stations and a casino, so a deputy stopped to check out what was going on in the middle of the night with the backhoe and found a pick up overloaded with silver dollars. The moral of the story is plan a little better if you have truck loads of silver. The girl friend and her boyfriend were charged with murder and went to prison. No one would say what happened to the silver.

847328_3527's picture

DoChen, so right! I grabbed ALOT of PALL when it was 57.....sold this week at 75.  Helped balance out the PM portfolio since silver and that yellow metal seem to be stuck in a rut right now...which is odd since slv is half an industrial metal. However, seeing how much printing is going on, I'm expecting them (silver and gold) to break out soon.


Silversinner's picture

Dochenrollingbearings has been long time calling for diversifycation

into the Pt,Pd.I followed your advice and its working out very well.

It adds more stabillity to my portfollio.

By keeping constant percentige,in my case

40%au40%ag,6%pt,4%pd,you always buy

the most undervalued when adding on to

ones position.

+10 for you dochen

Bansters-in-my- feces's picture

Does S Bernanke know this...?

If not.....


toothpicker's picture

He's only interested if Platinum & Palladium come as paper (or in digital versions)

Manipuflation's picture

Meh, I was in the physical palladium market from 2008-2011.  It's not an easy market.  I remember reading some BS story about India building millions of some little shit car for export and that they would all need catalytic converters, so I loaded up.  I bought at $430 an ounce and Pd promptly plummeted to sub $200 levels.  I waited and held and finally sold out at the $700 range but it took three years to see that nominal increase. 

I would have been better off buying Au or Ag in that time frame.(which thankfully, I did as well)  If you think the Ag market is small, the Pd market is much, much smaller.  Not a good trading idea for daytraders.  Long term physical might be OK but you are automatically long then and good luck finding a buyer who actually knows what palladium is.  Buy silver instead IMHO.

Spitzer's picture

Im not a fan of these metals. Same stock to flow ratio as pork bellies and wheat. Not a monetary metal.

dr.charlemagne's picture

Not a monetary Metal? Haven't you heard of the trillion dollar platinum coin? My platinum maples look and feel like money to me, and they are doing good. Nice hedge/diversification if you ask me. 

Spitzer's picture

Paul Krugman supported the million dollar coin idea. That says enough right there.

When was the first platinum maple introduced ?

Overfed's picture

As much as I love the platinum-group metals, I avoid them for investment (long-term hedge) purposes. They are all high tech metals, and their very high melt temps and low malleability make them difficult to work in a non-industrial, non-technological setting.

Stick with silver and gold, IMO.

Manipuflation's picture

Fuck it, let's all run out and buy Rhodium.(you first though)  The chart looks like a boating accident to me.

DoChenRollingBearing's picture

Yes, 10 years ago rhodium reached $10,000 / oz!  Good thing kitco did not have any for sale back then...

Manipuflation's picture

Actually, it is too bad Kitco didn't have any rhodium for sale back then because I would have probably bought some.  Even today, I would have a tough time finding a buyer for rhodium though unless it is kitco.  How many people trade rhodium?  Like six of us?LOL  The premiums are the real bitch on both sides of the physical trade.  At any rate, you and I are on the same page with PM's.  Nice to meet you, Sir.

lolmao500's picture


Meteorite crash in Russia: UFO fears spark panic in the Urals

A series of explosions in the skies of Russia’s Urals region, reportedly caused by a meteor shower, has sparked panic in three major cities. Witnesses said that houses shuddered, windows were blown out and cellphones stopped working.

jonjon831983's picture

Could be break off parts from that asteroid passing through real close to us.


Ultimate Keynesian wet dream if it crashed onto earth hein?

A. Magnus's picture

Interesting how in none of those Russian videos did I see any chemtrails; Putin may be a ruthless gangster bastard, but at least he kills his victims quicker than our patented, slow, deliberate degeneration...

lolmao500's picture

Russian Emergencies Ministry says further impacts of meteorite fragments are possible; forces on high alert

dwayne elizando's picture

Iridium comes from meteorites. I've read that it's the rarest of all the metals.

jonjon831983's picture

Soros playing games with Gold

"Billionaires Soros, Bacon Cut Gold Holdings on Decline"

Lordflin's picture

If you are looking for metal that plays well technologically silver is the way to go... Far more applications, much tighter squeeze, and it doubles as a monetary metal in the event of a currency crash...

Mr Lennon Hendrix's picture

And JPM et al is shorting the shit out of it with paper derivatives which means that the price is artificially suppressed.

samcontrol's picture

we all know about jp morgue, i am crazy on silver and NOT making much paper dollars at all. My bad, i'm stubborn , and i bought more " miners" yesterday.. now i have

gld , phys , pslv , gdx , gdxj , ag, exk , pzg ...

and don't tell me i need the real stuff unless you want to bring it to me........ San martin de los Andes , Argentina.

that is one thing not talked about here,,, the Difference with getting phys stuff in first world countries , like the US and Europe, Australia, etc....
and getting some silver standing by a mine in Argentina or Chile or South Africa, Mexico....ok maybe Mexico....
no real dealers.... banks tie purchases with income and taxes..

I can rephrase... i'm right next to the fucking stuff and i can't get it!!

What i am saying is is very hard ,if at all, to get gold or silver anywhere close to spot price in MOST countries worldwide....

My guess is the BRIC s will have to do with PMs Outcome over the next ten years?
Obviously i am not the smartest on the block , seriously!

Midas's picture

I haven't figured out why South Americans use the U$S to hedge against their shitty currency.  The only gold shop I have seen in Argentina is on calle Florida in Buenos Aires and you are right, the margins sucked.  I really don't know how they missed silver.  The name of the country is ARGENTINA.  I liked your list of miners, I am thinking of getting some PAAS tomorrow.  (Not a euphemism)

Monedas's picture

The French word for money is "argent" .... in Spanish it's "plata" ?

samcontrol's picture

i'm french and live in Argentina..... and you are right Sir....

They do have " el rio de la plata"

silver river.....just no silve for me.

samcontrol's picture

paas was on my list but i think it has stakes in
argentinA....mining is a big problem right now here, and can and will be shut down and or taken by government,,,same thing ..give it two to three years.

So carefull with abx and the sorts...

semperfi's picture

Trade your GLD for CEF & PHYS.   GLD is a tool of the criminals.  So are GDX & GDXJ.

TruthInSunshine's picture

That is article is so full of bullshit that the background on my LCD turns brown when I open it.

fonzannoon's picture

not only is this article full of shit, it reeks of desperation. it's like they are scrambling for a lifeliene to cling to because their precious metals QE theory is getting beat up.

what a bunch of fucking pussies. either stay the course or bail. don't tell me you just discovered platinum today after it has gone up recently.

Sprott goes right on my full of shit list. Pathetic.

kito's picture

+1 fonz.............sprott is so full of shit.................4 months ago, it was the end of the banking system..........last month the banks havent been stronger since 2008..............six months ago silver was the star of the platinum cant be beat.........................shit-talking his book.....................

semperfi's picture

The banks are only stronger due to crime.  When their crimes catch up to them, and to the Western system in general, you'll wish you would have been all-in in metals, including lead.

kito's picture

that clearly wasnt my point..nor the point of fonz....our point is that sprott is FULL OF SHIT....talks out of both sides of his i stated before.....sprott was calling for the end of the banking system the past he alleges the system is the strongest its been in 5 perhaps you should relay your message about the strength of the banks resting on a criminal platform over to mr sprott himself.......................