Platinum ETFs and Stocks Set To Soar? (PPLT, PALL, SWC, IMPUY)
Jeff Uscher: Platinum prices, which have been below gold prices since mid-2011, are once again higher than the yellow metal, and the spread’s widening.
Platinum was trading around $1,674 an ounce Friday, while gold was down around $1,605.
Platinum prices have been climbing since the start of the year as industrial activity and automobile production have picked up in the U.S. and in China.
The white metal has also been given a boost by new restrictions on platinum ore exports by the government of Zimbabwe and the closure of several mines in South Africa.
With production down and demand rising, many analysts expect platinum prices to continue to rise.
Gold, on the other hand, continues to consolidate after hitting an all-time high in the fall of 2011.
Historically, platinum has usually traded at a small premium to gold. For most of the period from 2000 until the financial crisis of 2008, platinum traded at a premium of 50% to 100% over gold, occasionally spiking even higher.
However, as platinum and other platinum group metals (palladium and rhodium) became widely used in catalytic converters, demand for these metals has skyrocketed and so have prices.
This makes now a good time to be investing in platinum.
Demand for Platinum Group Metals
The resurgence of car and truck demand in the United States and China has increased demand for platinum group metals for use in catalytic converters.
According to Johnson Matthey, a leading refiner of precious metals, industrial uses excluding catalytic converters make up about 30% of total platinum demand. Catalytic converters for the auto industry use 33% of the world’s platinum while jewelry accounts for 29%. The remaining 8% is made up of platinum coins, bars and ingots used for investment purposes.
Demand is particularly strong in China, where air pollution has gotten so severe that it has finally gotten the attention of the State Council, China’s highest political authority.
The South China Morning Post reports the Chinese government is pressuring state-owned oil refiners to refine and distribute gasoline and diesel fuel that meet strict emissions standards.
High-temperature gasoline engine exhaust allows the use of cheaper palladium in catalytic converters. Diesel engines burn a lot cooler. Only expensive platinum will work in diesel catalytic converters.
As China begins to replace its aging fleet of high-emission diesel trucks with low-emission trucks designed to burn the new, low-emission fuels, platinum demand will rise.
But China is not the only market where demand for diesel engines could increase.
Diesel engine cars and light trucks are slowly becoming more popular in the United States because of high fuel prices and diesel’s greater fuel efficiency.
General Motors Co. (NYSE:GM) introduced a diesel-powered Cruze at the Chicago Auto Show last week and Chrysler has introduced a diesel Jeep. And one in five cars sold by Volkswagen AG (VLKAY) in the U.S. has a diesel engine.
All of this boosts demand for platinum.
Supply-Side Worries Affecting Platinum Prices
South Africa, Russia and Zimbabwe are the world’s three largest suppliers of platinum group metals.
Strikes and other labor unrest by miners in South Africa and higher taxation by the government have caused the largest platinum miner, Anglo American Platinum (AGPPY), to close some of its South African mines.
In neighboring Zimbabwe, the government has banned the export of platinum ore and has given miners there two years to build platinum refineries in an effort to boost the value added to platinum exports.
On Wednesday, the government expropriated land owned by Zimplats, the biggest platinum miner in Zimbabwe, which may affect the company’s expansion plans.
Investing in Platinum
Fortunately, there are some alternatives for investors looking to own platinum.
The ETFS Physical Platinum Shares (NYSEARCA:PPLT) offers a way for investors to own physical platinum without actually taking possession of the metal. For those interested in palladium, the ETFS Physical Palladium Shares (NYSEARCA:PALL) makes a good alternative.
Stillwater Mining Company (NYSE:SWC) mines platinum group metals, including platinum and palladium, at its mine in Montana. The company also mines platinum group metals in Ontario, Canada, and has other mining properties in Argentina.
Impala Platinum Holdings (PINK:IMPUY) also trades in the U.S. but it is the operator of Zimplats in Zimbabwe and should probably be avoided until the Zimbabwean government finalizes its export and expropriation policies.
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