By most any measure, the magnitude of last weeks financial Sturm und Drang in the stock market was breathtaking. It offered a peek at the extent to which the world has squirreled its acorns into paper instruments of finance. Markets and confidence are in what we chemical technology people might call an “upset condition”.
It is interesting to note the recent price phase relationship between Gold/Silver (Au/Ag) and the rest of the Platinum Group Metals (PGM’s). Gold and silver underwent dramatic price spikes this last week while the other PGM metal prices were umoved. Since the earlier part of ’08, Platinum (Pt), Palladium (Pd), Ag, and Rhodium (Rh) have been in a major price decline from recent all time high prices. Even Au bullion prices has been in somewhat of a decline until last week.
But the recent collapse of the sub-prime mortgage market has caused many investors to flee securities in favor of gold and to a lesser extent, silver. There is absolutely no surprise here. This is expected. But what is interesting to metal watchers is the behaviour of the other metals in this epic time.
All of the PGM’s- Au and Ag included- have at least some industrial uses. So, prices have an industrial demand component. But only Au, Ag, and Pt prices are strongly driven by numismatic and jewelry demand. Yes, Pd and Iridium (Ir) may have some price sensitivity owing to their use for jewelry alloys. But consumers demand gold, silver and platinum jewelry by name and this exerts powerful leverage on the prices of this subset of PGM’s.
Investors seek refuge in Au and Ag during times of economic uncertainty. As a result, prices tend to go high.
The substantially industrial metals- Pd, Rh, Ir, Ruthenium (Ru), Osmium (Os), and Rhenium (Re), as well as the mixed use metal Pt have a different kind of demand picture. When industry is meeting strong demand for their goods and services they, in turn, apply business-to-business demand pressures on the PGM market and, ultimately, the mines.
The non-jewelry members of the PGM group are strongly associated with metallurgy and with industrial and consumer catalysts. Examples of metallurgical applications include Re/Ru alloys for jet engine turbine blades, Ru conducting layers in semiconductor chips and components for disk drives. Industrial catalysts are used extensively in chemical processing- fuels to pharma- while consumer catalysts (Pt & Rh) are largely manifested as mandated automotive catalytic converters. Rhodium is also used in hydroformylation processes. This and other arcane applications are largely unknown to most consumers.
As if to highlight the perversity of nature, the PGM metals are among the most useful metals in nature for catalytic application- Rhodium and Platinum in partcular. I will groan audibly when I hear that Pt prices have inched upwards due to strong demand from the jewelry sector.
In times of high consumer demand for the products whose manufacture requires these metals, prices trend upwards with PGM scarcity. PGM’s are mined in a relatively few lucky locations around the world: South Africa, Russia, and Canada predominantly.
As we are witnessing, investors tend not to flee to Rhodium or Osmium in times of economic upset. The take home lesson in this is mainly for industrial procurement folks. Now is a good time to stock up on PGM catalyst metals. That is, of course, if you can convince the hot shots with the MBA’s.