Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Big Gains To be Made in Platinum and Palladium

Commodities / Platinum Feb 03, 2011 - 03:53 AM GMT

By: Mike_Stall

Commodities

Best Financial Markets Analysis ArticleWhile a majority of investors, analysts and experts dwelt on gold and (to a lesser extent silver) in 2010, sister precious metals platinum and palladium notched up significant gains matching gains in the investment safe havens. While gold and silver gained close to 30% and 80% respectively, platinum and palladium were nowhere lagging - gaining in the region of 20% and 100% in that order. We inspect long-term prospects of these lesser invested metals in this essay. A strong case for platinum and palladium makes for diversification of precious metals funds into these metals. This diversification of funds is of particular importance when Investors are being suggested to wait for medium-term corrections before stocks become 'investable' again.


Automobile Demand - Key Support for Platinum, Palladium

More than investment demand and close to jewelry fabrication, platinum draws well over a third of its overall demand from industrial applications in the automotive industry. Its use as an autocatalyst and extensive use in vehicle emissions control devices makes its demand fundamentals strongly linked to the demand of automobiles. This also makes platinum more sensitive to economic, industrial and market conditions. Palladium is also extensively used as catalytic converters in the auto industry - even more so than platinum.

Platinum/Palladium demand

Given the dependence of platinum and palladium on a sector like auto, prices of these precious metals react almost immediately to auto demand changes. While the recession hit auto sales in the US, platinum and palladium started to plunge way before most other commodities started correcting. With recovery in sales, platinum group metals have soared significantly in the past year or so. Not surprisingly, when we talk about these metals, we first talk about auto sales.

One of the key developments for the platinum group metals over the past few years has been China's rise to dominance as the largest auto market. China, along with India and the other BRIC nations (Brazil and Russia) has witnessed robust auto sales despite a drop in the US and Europe during the recession.

Turnaround in auto sales in the West has also been swift, thanks to government initiatives such as the cash-for- clunkers programs. The overall sales figures in 2010 have been encouraging and it can be safely concluded that the worst is behind us. The upcoming years will yet witness growth in auto sales, particularly in the developing world, which in turn renders prospects for the platinum group bullish.

Although, the removal of subsidy, rising fuel prices and stricter new registration laws are likely to hit the Chinese auto markets in 2011, China will remain a primary support for automobile manufacturing for the next few years. Another oriental economy touted to have the potential to replicate China's growth story in the auto market is India. Both India and China have registered robust sales numbers while the auto market remained damped elsewhere in 2009 and progressed by leaps and bounds in 2010. India is home to well over 40 million passenger vehicles - a healthy 26% sales growth was registered in 2009 while the rest of the bigger auto markets were reeling, making India the second fastest growing automobile market globally.

Car Sales across Regions

Long-term auto sales data shows that the saturation in the auto sector in the US and Europe is more than compensated by a growing market in China and India. Additionally, unlike what looked apparent during the recession, sales in the developed markets will not plunge as sharply as expected. The health of the auto sector augurs well for platinum and palladium - we do not foresee any perceptible change in the dynamics of the auto sector at least for the next 2-3 years, which is as far as suggested long positions will aim.

Emission Norms to Boost Platinum Group Metals in US and Europe

Platinum and palladium are used in catalytic converters which reduce harmful emissions from automobiles. With even developing countries becoming conscious about cutting down vehicle emissions, the demand for catalytic converters with palladium and platinum should increase further.

The ailing automobile industry in the US just returned to profitability in 2010. Automakers are optimistic that recovery from one of the biggest downturns in history is gaining steam and will sales will remain strong for some years now. Sales figures in Europe were still damp in 2010; however, expectations are of a better year ahead with strong support from the region's biggest market - Germany. The biggest support though from a saturated market in the West is its increasing emphasis on stricter emission norms.

The U.S. administration has revised the target of achieving a 35.5 mpg (miles per gallon) or 6.7 liters/100 km fuel economy to 2016, four years earlier than the initial target of 2020. The ambitious 40% rise in fuel economy, from the present standards, implies that even if fuel efficiency improves by half of the target, it would exert a positive influence on the demand for PGM.

The calculations numbers are only for the U.S., while standards that are even more stringent are intended for Europe, Australia and Japan. While Europe has targeted a fuel economy of 42 mpg by 2016, Australia is aggressively pursuing the 34 mpg target by 2010. These fuel economy standards are expected to impact industrial metals demand over the next five years. It is estimated that, approximately 15% of the automobiles will comply with the standards by 2012.

Is the Threat from Hybrid Vehicles Real?

Another key development in the auto industry, witnessed in the past few years, is the advent of electric/hybrid vehicles. There has been talk of hybrid vehicles rendering demand for PGM lower. Approximately USD 150 billion of the USD 787 billion stimulus package had been earmarked for green energy initiatives, including investment for the development of hybrid cars. With the auto majors such as GM, Honda and Toyota releasing various versions of hybrid electric vehicles (HEVs), it is expected to have a significant influence on the demand for PGM.

However, the good news (for platinum and palladium Investors) is that currently, HEVs constitute only a small proportion (less than a 3% market share) of the auto market - approximately 1.5 million units per year. The U.S. Department of Transportation's expectations that, by 2012, the market penetration of HEVs will be approximately 30% of the total production, is surely not on track.

Hybrid Vehicle Sales, US

Given the current demand trends for hybrid vehicles, a slow to medium penetration will be the probable scenario in the next few years. Currently, HEVs do not present any price advantage over the non-hybrid cars implying that the market penetration will depend on the technological advancements, which could improve the financial viability of these vehicles for both manufacturers and consumers. Therefore, the penetration of HEVs is expected to be a slow process, which may take four to five years to take off in a big way.

Interestingly, despite claims of a dampening of PGM demand from the invasion of hybrid vehicles, some car makers are of the opposite view. Hybrid vehicles use a combination of a battery and a standard internal combustion engine. The use of a combustion engine requires the use of a catalytic converter. In fact, in many cases the catalysts used in hybrid electric battery/internal combustion engine vehicles use more PGMs than regular vehicles. Clearly, the threat is not due to hybrid vehicles but fully electric vehicles which have an even lower penetration level.

Overall, the threat from hybrid vehicles (if any) is compensated by a growth in demand for platinum and palladium due to stricter emission norms. And to think, the developing regions are yet to enforce strict emission norms as in the US and Europe. Once the developing regions also jump into the emission norm bandwagon, the threat from a not so fast expanding hybrid vehicles market will likely be well overcome. Add to that an expanding car market and a shrinking supply side and the outlook at least for the next few years is bullish. Fundamentally, prospects for the PGM group are positive for the long-term. Investors may time their entry after minor corrections in the short-term due to a run-off from sister precious metals and a pause in the current rally.

To keep yourself up-to-date with movements in the precious metals markets, we encourage you to subscribe to our Premium Updates, providing in-depth analysis and cutting edge observations. We also have a free mailing list and if you sign up today, you’ll also receive 7 days of full access to our website, and you can unsubscribe at any time. Remember, as the gold rally enters this critical phase, investors will be well armed if well informed.

Thank you for reading.

Mike Stall
Sunshine Profits Contributing Author
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in