Industry intelligence
Palladium more valuable than gold?
According to MarketWatch writer Myra
Saefong, the price of palladium has had an
impressive climb of nearly 30% over several
weeks and could become more valuable
than gold for the first time in 16 years.
Future prices for palladium, which is
widely used in the pollution-control catalytic
converters on gasoline-powered vehicles,
jumped from a mid-August settlement
low of USD837.20 an ounce to end at
USD1072.80 at the end of September, the
highest finish since January 2018. That is
when prices hit a record above USD1100,
based on FactSet data going back to 1984.
“Car demand is solid across the world and
trends are towards big SUVs in the US and
small gasoline engines in Asia. All of these are
growing the palladium demand,” says Michael
Jones, CEO of Platinum Group Metals.
Automotive demand for palladium,
however, is expected to rise to a record high
of nearly 8.6 million ounces this year, after
logging an all-time high of 8.4 million
last year, according to speciality chemicals
company Johnson Matthey. The firm
also reported that demand for palladium
exceeded supply by 801 000 ounces in
2017, far more than the deficit of 89 000 in
2016. It forecasts another shortfall this year,
though a narrower one, of 239 000 ounces.
Strong demand for palladium comes as
global supplies have tightened. With the
majority of the supply of platinum-group
metals, or PGMs, coming from Russia, the
“potential of further economic sanctions
is an overhanging threat to supply,” says
Peter Grant, vice-president of commodities
and futures brokerage Zaner Metals. It
also “seems logical that China would be
bidding up the PGMs in an effort to secure
needed supplies before any additional tariffs
impinge on their ability to do so,” he adds.
Jones points out that about 40% of
palladium supply comes as a by-product
of platinum mining in South Africa, and
that has been declining on the back of
escalating costs and low labour productivity.
“Regardless of the palladium price, since
it is a by-product metal, the supply is
shrinking,” he says.
That has all contributed to a change in
palladium’s historical price relationships
with platinum and gold. The per ounce
price of platinum had traded above
the price of palladium from late 2001
until about a year ago. After roughly 16
years, the metals are “seeing an inverse
relationship,” and this “could have a
lasting effect going forward with respect
to investors’ vote of confidence,” says
Nicholas Gunther, market research analyst
at Long Leaf Trading.
“You are seeing investors change their
preference from platinum and migrate
more toward palladium.” In the wake of
the recent gains for palladium, the ETFS
Physical Palladium Shares exchange-traded
fund (ticker: PALL) has climbed around
13% for the quarter, while the ETFS
Physical Platinum Shares ETF (PPLT) has
declined by about 4.5%.
At the same time, palladium prices are
gaining on gold. “The gold/palladium ratio
is historically the narrowest it has been in
quite some time,” says Ed Egilinsky, head of
alternative investments at Direxion. “Gold
doesn’t have the same everyday industrial
usage as palladium, and gold has been more
directly susceptible to a strengthening US
dollar, contributing to its recent relative
weakness.”
He says the historical, long-term
relationship is that gold is priced two to
three times higher than palladium. The
current ratio is a little over one. “It is
possible for palladium to trade higher than
gold … if palladium supply continues to be
muted, demand for autos and electronics
increases, and tighter emission legislation
further takes hold in China and the US,”
Egilinsky says.
Platinum Group Metals’ Jones believes
that palladium could climb to USD1200
this year and USD1400 next year and
wouldn’t need a new ‘catalyst’ to get there.
“The chess pieces are all in place,” he says.
Local OEM expands into Russia
South African-based original equipment
supplier Weba Chute Systems has further
extended its footprint into the northern
hemisphere with the recent appointment of
a licensee in Russia. Managing director of
Weba Chute Systems, Mark Baller, says the
selection of Somex as its partner in Russia is
in line with the company’s long-term goal of
a sustainable international business model.
“We have always been very selective
about the markets that we enter,” Baller
says. “We obviously seek those markets that
offer the greatest potential, partnering with
companies that have the best possible fit to
ensure a sustainable future there.”
This approach has proved very successful
for the business and Weba Chute Systems
already has extensive representation across
the globe with licensees and agents in the
US, Canada, South America, Turkey, and
www.miningmirror.co.za
Australia, as well as throughout Africa.
Significantly, Weba Chute Systems has an
established reputation as an OEM with
more than 4 500 of its custom-engineered
chute systems installed across the world.
“Russia is important because it is one of
the largest producers of raw materials globally,
with a relatively untapped market where
Weba Chute Systems would be of immediate
benefit to many operations,” he says. “Many
of the plants that we visited in Russia are
state-of-the-art facilities with high-tech
equipment and best practice efficiencies.
However, on the materials handling side,
there is a huge need for improvement and we
can bring the skills and technical knowledge
to optimise these operations.”
Weather conditions in the northern
hemisphere place vastly different demands
on materials handling operations, but Baller
notes that this is a learning curve which the
company has already undergone.
“In Russia, there are extremes in weather
conditions from hot, humid summers to
freezing winters, which means equipment
has to accommodate the way this affects the
material being handled,” he says. “If moist
material freezes in a barge, for instance,
the particles being unloaded could become
larger chunks of 20–30 times the specified
lump size.”
He notes that a range of other factors
must also be considered during the design
phase, including the lack of accessibility
to many mines during certain times of
the year. This requires that maintenance
and servicing must be carefully planned
well in advance of product delivery, to
ensure optimal uptime and continuous,
cost-effective operation.
JANUARY 2019 MINING MIRROR
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