Opinion: Expect Demand, Price Rise For Platinum, Palladium

Opinion: Expect Demand, Price Rise For Platinum, Palladium

Increased demand and higher prices for precious metals and the associated mining stocks could reverse the drop in prices that hit the industry hard in the past year, according to an editorial by Sasha Cekerevac at Lombardi Financial.

Cekerevac predicts significant imbalances in the market, particularly for platinum and palladium, that could push up prices and demand for industrial use, according to Business2Community.

The majority of demand for both of these precious metals comes from construction of catalytic converters for the automotive industry, and “it’s quite easy to see where demand and supply will be moving forward,” he said.

South Africa and Russia supply most platinum and palladium. Mining stocks have had problems over the past year, especially in South Africa, where labor issues caused production disruptions and higher costs.

Demand comes from vehicle sales, and with the cheap money being pumped worldwide, this means affordable financing for millions of people,  Cekerevac said. “Car sales in America are booming once again, but a huge market over the next decade will be China.”

Hundreds of millions of people who don’t have cars will likely begin buying them, driving demand for both platinum and palladium, he said.

While most precious metals have suffered this year, palladium is actually positive year-to-date and close to its highs. This just shows how strong industrial demand is and how low supply is coming from the mining stocks.

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However, many of the mining stocks involved in producing both platinum and palladium are located in South Africa. Because of the potential for labor strikes, costs are beginning to rise and supply is not guaranteed.

While supply disruptions might be positive for the price of the actual commodity, mining stocks themselves could face pressure in earnings if a violent strike were to erupt in South Africa. In 2012, there were labor clashes and deaths, with the related mining stocks ultimately raising salaries.

Both of these precious metals will be priced much higher over the next decade, simply from the increased demand and lack of new supply, Cekerevac said. However, one needs to be careful to avoid mining stocks in that region, as they could be extremely volatile.

He suggests two ways to consider investing in platinum and palladium: one is through a company called Stillwater Mining Company, a U.S.-based company that not only produces platinum and palladium from mining operations, but also has recycling facilities for spent catalytic converters. The company is the largest producer outside Russia and South Africa.

Another option for playing mining stocks in this area is The Sprott Physical Platinum and Palladium Trust, a closed-end fund that holds both metals physically.

This article was originally published at Investment Contrarians.