Chairman of Sprott Global shares his outlook on platinum and palladium.
[This article originally appeared on Sprott’s Thoughts and is republished here by permission.]
Strikes at South African mines have caused a massive drop in platinum and palladium production. And the world’s palladium supply could decline by 41% overnight if the West imposes export sanctions on Russia. Speculators are betting that these events will reduce supply of the metals and drive up prices.
Rick Rule, chairman and founder of Sprott Global Resource Investments Ltd., recently weighed in. He believes platinum and palladium could go lower in the near term, as fears of a sudden crunch dissipate.
The real reason platinum and palladium should rise over the coming years has nothing to do with geopolitics or labor issues, he believes. Rick begins:
"The political dispute with Russia is not particularly relevant to the platinum and palladium industry, except in the extremely short term. Cutting off exports from Russia is not in the West’s interest, and certainly not in Russia’s interest. So I doubt that a politically motivated ban on exporting the metals will arise."
As these fears subside, it could take the metals’ prices lower, as speculators focus on short-term effects. Meanwhile, Russia’s exports are likely to decrease for other reasons, which many investors might miss:
"The supply of platinum and palladium from Russia is threatened by decreasing ore grades at depth in the Norilsk mines, where most of the metals are mined. These mines have been in operation since the early 20th century, so they are likely nearly depleted.
"New mines in Russia are probably 10 years away. So at least for the next decade, production should continue to decrease as deposits are increasingly mined out.
In South Africa, Rick believes labor disputes will plague the industry until big miners are simply forced to shut down. These strikes and violence are symptoms of how harsh conditions have become in platinum and palladium mines as they go ever deeper to produce ore. These companies still generate insufficient cash flow to pay their workers well.