You may think of platinum as a jewelry metal. But nowadays, platinum is more often used as an autocatalyst — a catalytic converter — in diesel engines.
So far, scientists just haven’t found a good substitute for the metal. And that makes this metal even-more-precious in value.
For my Global Resource Hunter members, I’ve written about the labor strikes going on in South Africa. What you may not know is that South Africa supplies around 80% of the world’s platinum.
The problem is that miners in South Africa want a bigger slice of the pie — and many of the mining companies say they can’t afford to hike wages any more.
Resulting strikes hit big miners all across that nation, including Anglo American Platinum (AGPPY), Atlatsa Resources (ATL), Impala Platinum (IMPUY) and more.
Some of the miners like Impala have worked out new deals — others are seeing the conflict drag on.
Result: South Africa’s production of platinum-group metals dropped 17% in September.
Investors are figuring that all the miners in South Africa will work out a deal eventually — otherwise platinum would already have blasted off. But what if the labor actions continue to drag on?
Undersupply to Push Platinum Prices Higher
Specialty-chemicals group Johnson Matthey says the drop in output we’ve already seen should lower South Africa’s platinum output to the lowest level since 2000. That should leave the market undersupplied by 400,000, the most since 2002.
And it’s a big wing from last year’s surplus of 430,000 ounces.
To put that in context, world platinum supply last year was just 7.9 million ounces. That includes mine supply, autocatalyst scrap — everything. Compare that to the world’s total gold supply last year — 144.6 million ounces.
In other words, platinum is RARE.
And South Africa Is Only Part of the Problem
The other side of the equation is demand.
Sure, demand for platinum as an autocatalyst is falling in Europe as that continent slips deeper into recession. But demand for platinum autocatalysts in emerging markets is rising.
Johnson Matthey expects that total demand for platinum should drop 0.3% this year — not enough to bridge the gap if production from South African mines is really SNAFU’d for a long time.
Overall, Johnson Matthey expects global platinum supply to drop 9.9% to 5.84 million ounces this year, pushed lower by a 12% drop in South African production.
One more thing to consider: Before the 2008 credit crisis, platinum reached a high of $2,252 when gold was below $1,000 per troy ounce. Now, gold is over $1,700, while platinum is under $1,600 an ounce.
Platinum Could Play Catch-up To Gold in an Extraordinary Way
A move to $3,000 an ounce or higher is not out of the question. So how can you play this?
You could buy one of the miners that operate outside of South Africa — like North America’s own Stillwater Mining (NYSE:SWC).
You also might consider a position in the ETFS Physical Platinum Shares (NYSEARCA:PPLT) — an ETF that holds physical platinum. It has an expense ratio of 0.6%.
Let’s look at a chart …
You can see that PPLT is below its 50-day moving average. But recent price action sure looks like a set-up for PPLT to test that overhead resistance. If it breaks out, the surge could be huge, especially if investors start piling in.
One word of caution: PPLT can be thinly traded, so be careful. And do your own due diligence before buying anything.
One final note: South Africa is also a big gold producer, and plenty of gold miners have also taken hits from the South African strikes — names like AngloGold Ashanti (NYSE:AU), Gold Fields (NYSE:GFI), Harmony (NYSE:HMY) and many more.
The latest figures show that South Africa’s gold production dropped 11% in September compared to the same month last year. Would a protracted labor action be bullish for gold? Bank on it!
I will be on hiatus next week for Thanksgiving, so let me take this opportunity to wish you and yours the best for the holidays. We all have a lot to be thankful for, including many potential happy returns ahead.
All the best,
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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