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business newsBig Gains to Be Made in Platinum, Palladium
By
Mike Stall Feb 03, 2011 9:00 am
The upcoming years will witness growth in auto sales, particularly in China and India, which in turn renders prospects for the metals group bullish.
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While 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 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. I 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.
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 program. 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 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.
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 -- I do not foresee any perceptible change in the dynamics of the auto sector at least for the next two to three years, which is as far as suggested long positions will aim.
While 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 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. I 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.
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 program. 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 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.
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 -- I do not foresee any perceptible change in the dynamics of the auto sector at least for the next two to three years, which is as far as suggested long positions will aim.
No positions in stocks mentioned.
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