Platinum Group Metals: The GM Angle

June 15, 2009

 

The reason? Despite its industrial applications, platinum often behaves like other precious metals, such as gold and silver, due to its use in jewelry and its effectiveness as an inflationary hedge. Palladium, on the other hand, has a range of niche, nonautomobile industrial applications (in the electronics and chemicals industry, for example), and therefore tends to mimic base metals like copper.

"Platinum is a hot metal directly hit by issues such as the fate of General Motors, while palladium is behaving like a base metal and keeping a distance from auto problems," Yukuji Sonoda, a precious metals analyst at Daiichi Commodities, told Reuters.

But something to keep in mind: Should electric cars ever take off, catalytic converters would become obsolete - and as a result, platinum and palladium could take a major hit.

 

The Fortunes Of Stillwater Mining

GM's bankruptcy and a shifting platinum/palladium demand picture could have major consequences for the U.S. sole platinum group metals miner, Stillwater Mining (NYSE: SWC).

According to their Q1 2009 report, 70% of SWC's platinum production and 100% of its palladium goes to two major automaker clients: Ford - and you guessed it - General Motors.

In a press release last month, Stillwater CEO Frank McAllister said:

"The overall consequences of a General Motors bankruptcy are difficult to predict. The contractual floor prices in our automotive contracts and the collectability of our accounts receivable could be placed in jeopardy. We are monitoring these risks closely."

Still, SWC has had ample time to prepare for and dilute the impact of a GM bankruptcy. Stillwater CFO Greg Wing recently told Mineweb, "Because independent terminal markets exist for both platinum and palladium, should the GM contract be dissolved we believe we will still be able to sell the metal we produce."

In fact, the Ford deal is apparently more valuable than the GM contract, revealed Steve Gentry, a spokesman for the United Steelworkers Local 11-0001 miners union.

"I haven't heard anything that would concern me, at least up until this point. Their major contract is not with GM; it's with Ford, and Ford hasn't gotten into all this," he said.

So far, SWC has experienced an extended rally since March, boosted like many platinum stocks by investors seeking inflationary hedges. Shares are up 48.5% to date, despite a first-quarter loss of $11.6 million.

 

Accessing Platinum And Palladium

Apart from miners, U.S. investors looking to invest in platinum and palladium have a few options available to them. Although there's still no launch just yet of a platinum or palladium bullion-backed ETF akin to the SPDR Gold Trust ETF (NYSE: GLD), investors wanting physical exposure to the metals can purchase NYMEX futures contracts for both. (ETF Securities does run bullion-backed exchange-traded products for both metals in London.)

For nonphysical exposure, investors can hit up ETNs like the E-TRACS UBS Long Platinum ETN (NYSE Arca: PTM), the E-TRACS UBS Short Platinum ETN (NYSE Arca: PTD) and the iPath Dow Jones AIG Platinum Total Return Sub-Index ETN (NYSE Arca: PGM).

 

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