Precious Metals: Updated Platinum Group Metals

Platinum and Palladium

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Platinum Group Metals or PGMs are some of the rarest metals found on earth. There are two subgroups of PGMs- Palladium Group-Platinum Group Elements (PPGEs) and Iridium Group-Platinum Group Elements (IPGEs). The first group consists of platinum, palladium, and rhodium. The second consists of iridium, osmium, and ruthenium. No PGMs tarnish and they are highly resistant to heat and chemical attack. They are all excellent conductors of electricity.

PGMs have excellent catalytic properties.

 Objects that date back to around 700 BC have contained platinum. Other PGMs did not make their way onto the scene until the nineteenth century. Today, automobile manufacturers are the largest users of PGMs. PGMs are a key component in the production of catalytic converters. These metals also have medical applications in chemotherapy and the construction of various types of medical devices. Molds for the production of fiberglass, catalysts for processing crude oil into oil products and the production of fine jewelry and coinage require these rare metals.

The trading market for platinum and palladium is active and the prices of these metals can be highly volatile.

Platinum

Platinum is more than ten times rarer than gold. Total annual mine supply of platinum is around 250 metric tons. The vast majority of platinum production in the world comes from South Africa (80%) and Russia (15%).

There is minor production of platinum in the United States, Canada, and Zimbabwe. South African platinum production is primary production while in Russia it is a byproduct of nickel production.

According to many analysts, platinum production is not likely to rise in coming years. In South Africa, three companies, Anglo American Platinum, Impala Platinum and Lonmin account for the countries mine supplies.

South African producers have already recovered platinum that is close to the earth's surface. Today, producers must dig far into the earth's crust for the metal. Deeper mining translates into higher production costs and less total production of the commodity.

Platinum is, in many ways, rich man's gold. Traditionally, due to its' rarity, platinum trades at a premium to the price of gold. London is the center for platinum trading but physical delivery tends to take place in Zurich, Switzerland. The NYMEX division of the CME offers futures contracts on platinum. Each futures contract represents 50 ounces of the metal. The price of platinum tends to rise and fall with global industrial conditions. The price of platinum peaked in 2008 at $2,300 per ounce just before the global economic crisis of 2008.

Palladium

Palladium is the most commonly occurring PGM. The vast majority, over 80%, of annual production of palladium comes from Russia and is a byproduct of nickel mining. The United States produces some 14% of the total annual supply of the metal. Approximately 60% of the annual production of palladium goes to the automobile manufacturing sector. The electronics industry uses about 20% of annual supplies.

Like platinum, London is the center for palladium trading but physical delivery tends to take place in Zurich, Switzerland. The NYMEX division of the CME offers futures contracts on palladium. Each futures contract represents 100 ounces of the metal. The price of palladium tends to reflect global industrial conditions. The price of palladium peaked in 2000 at $1,090 per ounce.

The Other PGMs

Rhodium, osmium, ruthenium and iridium trade only in the physical market - there are no futures contracts offered. Each of these metals has important industrial applications. Each metal is rare. There is some degree of trading and speculative interest in rhodium from time to time. The other minor PGMs flow from producers to ultimate consumers directly with little or no trader or speculative involvement.

Platinum Group Metals are necessary for the production of many of the goods we use in everyday life. When it comes to precious metals, PGMs most certainly earn the title.

Platinum and Palladium Update

Platinum and palladium, both industrial precious metals, have moved lower in 2015. At the end of the third quarter, palladium was down around 18.5% on the year while platinum lost just under 25% of its value. While 2015 has been a bearish year for most commodities, the platinum group metals have underperformed the entire asset class.

The reason for the weak performance has been the industrial nature of these rare metals. Demand for these two metals has decreased as automobile sales have suffered due to sluggish global economic conditions. At end of the third quarter of 2015, the price of platinum plunged to lows of $897.10. At the same time, palladium traded to lows of $520. As of October 23, each metal has recovered to just over $1000 and just under $700 per ounce, respectively. One issue that has affected the relative price of these two metals is the issues surrounding the scandal at VW. More platinum is required for catalytic converters in diesel engines while more palladium is required for gasoline-powered engines. This is one of the reasons that platinum has underperformed palladium during the third quarter of 2015. Platinum dropped by almost 16% and palladium was only down by 3.23% in Q3.

The stronger U.S. dollar, contagion due to economic weakness in China and Europe and a general bear market in raw material prices has weighed on demand for platinum and palladium. Both of these metals are extremely rare and as such, they can be highly volatile in nature.