Platinum Group Metals (PGMs)

Background:

The Platinum Group of metals (PGMs) includes: platinum, palladium, iridium, osmium, rhodium, and ruthenium. The most well known industrial characteristic of these metals is their use as catalysts. The primary consumer of PGMs is the auto industry, which uses them in the construction of catalytic converters, which reduce the toxicity of auto exhausts. PGMs are also commonly used in the production of crystals, and particularly oxides. For instance, platinum and platinum-rhodium alloys are used in the production of nitric oxide, a major component of many fertilizers and explosives. Ruthenium dioxide is used to produce chlorine. Platinum is also commonly used in the production of high-end jewelry, as it is exceptionally resistant to tarnish, chemical reactions, and wear.

The prices of the most-commonly traded PGMs – platinum, palladium and rhodium – all tend to rise when expectations of industrial growth are improving, and all recovered strongly during 2009, although they have not approached their mid-2008 highs. Unlike other precious metals demand is primarily industrial: all three have catalytic properties and are used in automotive, medical and electronics applications.

The PGMs are found in very small quantities, primarily in only two mines, one in South Africa close to Pretoria and one in Russia in the far north of Siberia. Demand comes from industrial and jewellery applications, although investment demand which accounts for about 10% of demand for each metal has been increasing due to the availability of physical commodity exchange traded funds (ETFs). Limited production volumes and the lack of diversified sources mean that prices of all three commodities are subject to volatility – rhodium, in any case the world’s most costly precious metal, briefly spiked to over $10,000 / ounce in 2008. The combination of a cyclical industrial recovery and a secular increase in industrial demand is likely strongly to support prices for all three metals in the coming period.