Platinum Metals Is Looking Good

By Aaron Levitt | December 21, 2011 AAA

Gold and silver have garnered most of investors' attention over the last year. Both precious metals have seen their prices soar to record highs, before falling back to earth. It seems that each day brings more news about the pair and the SPDR Gold Shares (NYSE:GLD) has seen its assets under management swell. However, as investors have flocked to gold and silver, the other two horseman of the precious metal world have gone almost unnoticed. For contrarians, the duo of platinum and palladium could be a better bet, and some analysts predict a banner year for the two.

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Rising Demand
The platinum metals group could be the best metals investment for portfolios in upcoming year. Analysts at Russia's Norilsk (OTCBB:NILSY) (one of world's top platinum group metals producers) estimates that demand will rise as much as 5% next year. This will exceed demand increases for more traditional industrial metals. Fueling this increase in demand is the fact the platinum group features attributes of both precious and industrial metals. (For related reading, see A Beginner's Guide To Precious Metals.)

On the industrial side, more than half of platinum and palladium mined goes into making catalytic converters. These devices take damaging greenhouse discharges from automobiles and other emission sources and convert them into less harmful substances. Despite the predicted global economic slowdown, analysts estimate that global automakers will use a record $7 billion worth of platinum in catalytic converters next year. This will be a 17% increase versus 2011 and the most used since 2007. Platinum is also found in a variety of high-tech industries including LCD monitors, hard disk drives, batteries and electrodes.

Platinum and palladium are also seeing their demand rise as both a store of wealth and jewelry. According to data provided by J.P. Morgan (NYSE:JPM), jewelry now accounts for more than one-third of demand for the metals. Analysts estimate that increases in platinum jewelry sales for this year will rise 40% as emerging markets consumers in key markets (China and India) now view platinum in the same regard as gold. In addition, investors held more than 40.33 metric tons of platinum in exchange-traded funds, about 7% more than at the start of the year.

All of these demand increases are coming at a time of constrained supplies. Analysts estimate that production declines in both South Africa and Russia will lead the way. Norilsk estimates that it will take until 2020 before it will see any increases in production.

Playing the Two Other Precious Superstars
For investors, the supply and demand constraints for both palladium and platinum make for an interesting portfolio play. Similar to the physically backed iShares Silver Trust (ARCA:SLV), both the ETFS Physical Palladium Shares (ARCA:PALL) and ETFS Physical Platinum Shares (ARCA:PPLT) hold bullion and directly track the prices of the metals. Investors can use them as proxies for the metals. The futures-based UBS E-TRACS Long Platinum TR ETN (ARCA:PTM) can also be used.

As with the rest of the precious metals space, investors can gain additional leverage by betting on the miners of the platinum metals group. Both North American Palladium (AMEX:PAL) and Stillwater Mining (NYSE:SWC) offer a chance to participate in the growth of the domestic mining sector for these two metals. Anglo Platinum (OTCBB:AGPPY) is responsible for nearly 40% of the world's platinum and Johnson Matthey (OTCBB:JMPLY) produces one out of every three catalytic converters in world.

The Bottom Line
While gold remains the go-to precious metal, the growth in platinum and palladium continues unabated. For investors, these quasi-precious and industrial minerals could be the best portfolio bet in 2012. The previous firms along with the First Trust ISE Global Platinum Index (Nasdaq:PLTM) could make ideal selections.

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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

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