Summary
- Platinum, Palladium and Nickel are outperforming the S&P 500 by a wide
margin in 2014.
- The relative strength is fundamentally due to declining supply from key
regions such as South Africa, Russia and Indonesia.
- Growth for Platinum, Palladium and Nickel is very strong especially in
growing economies in Asia which need catalytic converters and stainless steel.
- China has hardly any domestic PGM or nickel production. They must import.
- Focus on advanced PGM/Nickel development projects in stable jurisdictions
in North America.
Not all is bad in the metals sector. On the periodic table there are three
metals in a column that I will focus on as I believe they will continue to
outperform.
Nickel, Palladium and Platinum have been the outperformers in 2014. Palladium
is at multi-year highs.
Platinum Group Metals (PGM's) outperformed the equity markets, 30 year bond
and other metals except for nickel in 2014. Nickel is up more than 50% on the
year.
Remember South Africa and Russia control the PGM market with over an 80%
share of global supply.
Nickel supply was controlled by Indonesia which just announced an export
ban.
PGM's and nickel are outperforming for the following 10 reasons.
- Ongoing Labor Strikes in South Africa
- Tensions with Russia and Ukraine
- Auto sales rising in China to record levels.
- China requires increasing amounts of PGM's used in catalytic converters
to control air pollution.
- Indonesia which represents about 25% of global nickel supply has announced
export bans. This is comparable to announcing the OPEC nations cutting off
oil supply.
- In emerging economies cities are increasing in population requiriing the
building of skyscrapers, pipelines, bridges and power plants which stainless
steel is required.
- Economic sanctions with Russia could be adding to nickel and palladium
shortage.
- Existing PGM and nickel production growth.
- China the largest growing consumer of these metals have very little from
their own domestic production.
- Very few high quality and advanced mining projects in stable jurisdictions
that are in the project cupboard.
In conclusion, focus on either the Platinum (PTM), Palladium (PALL) and Nickel
(JJN) ETFs tracking the commodities. If looking for leverage to PGM and nickel
prices look at the large cap miners such as Stillwater Mining (SWC) which is
the only US palladium producer. Stillwater is making a major breakout into
new two year highs.
For more speculative investors looking for outsized gains with additional
risk should now study the junior miners who control advanced PGM and nickel
projects preferably with Preliminary Economic Assessments and Feasibility Studies
in top notch jurisdictions. Most of these stocks are smaller cap and trading
on the Canadian Exchanges and will be the focus of additional articles.