So Many New Demands and So Few Palladium Supplies

It looks like SWC has found a strong bottom at low $8 and is trying very hard to rally upward. I expect SWC to go back to double digit very soon. But really we need to concentrate on the big picture of near future palladium supply and demand.

I discussed before that for the past 4 years, virtually ALL analysts in the palladium market gave bearish outlook for palladium. And all of them have been proven wrong as the palladium price continues to rally up with other precious metals. The analysts were bearish based on the data they have, that Russians dump up to 2 million extra palladium per year from the government stockpile, creating a huge over-supply. But starting in 2003, and for the past 4 years, there have been some strong hand investors, they clearly see something really BIG in the near future of palladium, and loaded up every extra ounces of palladium that the Russians sold, and drive the price up. Did the strong hands see that Russians will soon exhaust the stockpile, and without the stockpile sale, the palladium market is actually in a physical SHORTAGE, not surplus? That of course is one consideration. But the bullish picture is way beyond that, and the strong hands must realize that, too.

The world produces only 7 million ounces of palladium per year. Without Russian government stockpile sale of 2M ounces per year, the existing industry demand already exceeded that supply, even when all recycling is counted for. But the emerging new application demands are way much bigger than existing demands:

1.Palladium jewelry demand. As of early this year, some data show jewelry demand already counted for about 25% of all palladium demand, a few years ago it was virtually zero. And the palladium jewelry market is just started. We will see palladium price be driven to near platinum price, before the palladium jewelry revolution will slow down a bit.

2.Various fuel cell applications use PGM metals. Do you LOVE to see a cell phone that goes 6 months without recharging overnight? Such a thing is powered by fuel cell and it is quickly coming to reality. Both platinum and palladium can be used for catalyst in fuel cells, and nothing else can. Since palladium is cheaper now, they are switching to palladium catalyst. And when it comes to using hydrogen fuel cell, then palladium is a must to filter the hydrogen. We see booming Direct Methanol Fuel Cell (DMFC) to power mobile electronic devices like cell phones and laptops, which will come to mass market as early as later this year. And we see hydrogen fuel cell driven vehicles. Honda already have 15 prototypes driving on the US streets, provide daily transportation for 15 regular US families. Read more on Fuel Cell Today. Update: It's now on CNN: US DOT Moves to Approve Fuel Cells for Airline Uses.

3.Palladium food insert. This is a huge market, even bigger than DMFC market. Each package of preserved food consume just a little bit palladium. But multiply that by hundreds of billions of packages of food, that is a huge demand. And there is little hope for recycling.

4.Hydrogen economy that Bush pitches. Anything that has something to do with hydrogen, must have something to do with palladium, due to the unique hydrogen afinity that only palladium metal exibits. Read the article The Russians Are Coming to see who is selling out our national treasure to the Russians. You really need to know why one of Bush's most close people is on the board of director of SWC.

5.Cold Fusion. Interest in cold fuions are picking up fast in recent years, after new experiments convinced even some of the most diehard skepticists. Even Nobel Prize winners now endorse cold fusion research. Cold fusion MUST be done using palladium, again, due to the unique hydrogen/deuterium affinity property of palladium. If cold fusion is scientically proven and become commercial products, we have solved our energy crisis and replaced it with a palladium crisis. There is simply not enough palladium in the whole world. The price of palladium will be driven to a thousand times more expensive than gold, and people will still think it is cheap to be used in cold fusion applications. The Atomic Motor Blog has some nice discussions on the topic. Read more here for the science of Cold Fusion.

Invest your money in SWC! Hold SWC for long term! You will make money beyond your wildest dreams possible!

A YouTube video discussing the background of Cold Fusion research:

Bright Future For PGM Metals

The future of SWC all depends on the future of PGM metals, palladium and platinum. If the price of PGM metal continue to grow up, SWC will be making tons of money in the near future. I spend extensive time studying PGM and everything I know convinced me that the future of palladium and platinum is absolutely bright!

Every precious metal analysts have made bearish predictions of palladium price, not just recently, but for each of the past 4 years. They based their accessments on known supply/demand numbers, which says the Russians are massively dumping their government stockpile of palladium into the market and there is an over-supply, therefore the price must drop. But the fact speaks otherwise. Palladium price in the past 4 years nearly tripled as the Russians dump up to 2M ounces of palladium a year into the market, on top of 7M world mine production. So what does that tell you?

There is a strong hand in Switzerland, loading up every excessive ounces of palladium that the Russians dump. The strong hand kept loading for several years, driving up palladium price. Strong hand sees something that most people do not see. He sees the emerging applications which will make palladium HUGE in the near future. This is a determined strong hand, determined to make BIG MONEY in this.

What emerging applications? You might think about palladium jewelry. But that is only a small potato in comparison to what is really BIG. The real biggie is Fuel Cell applications. Any fuel cell, regardless of their design, MUST use palladium and platinum. There is no replacement.

We talk about hydrogen fuel cell vehicles, which is big but will be some time away. But the mobile fuel cell application is something way much more closer than you think. We are not talking about a few years down the road. We are talking about seeing real commercial product on the store shelfs, as early as later this year! We are talking about fuel cell battery for laptop computers, for your cell phones, for your digital camera and other mobile electronic devices.

The high energy density of fuel cells allow such mobile electronic devices to work several months at a time without having to recharge. And recharge is as simple as just replace a methane catridge in a few seconds!!! Imagine that! Who wouldn't want one? And it is coming to mass market as early as later this year!!! Do a web search of DMFC, Direct Methanol Fuel Cell. The Chinese are pursuing DMFC developments, among other international players, judged from this academic paper. The US DoT just ruled that laptops and cell phones powered by direct methanol fuel cell CAN BE carried onto an airplane, removing one of the obstacles for broad acceptance.

Of course mobile fuel cell will have very broad application in military equipments. It's life or death in battle fields, you can not afford to have your electronic devices run out of battery power at critical times. So fuel cell will see the fastes adaptation in military equipments!

According to some research, we expect the mobile fuel cell market to grow to 80 million unit per year by 2012. That will surely consume a lot of palladium and platinum! One of the best sites to check out news, articles and analysis of latest fuel cell development is Fuel Cell Today. The other is Fuel Cells Works.

The future of SWC is extremely bright. SWC clearly has bottomed in price. This is a rare opportunity for people to load up SWC at dirt cheap price. Don't let the opportunity slip away!

Update: Yahoo user Orsa Maggiore recently started a blog discussing PGM metals and SWC. He does a much more detailed analysis of stuffs. Please have a look at his blog site.

What a Volatile Week for SWC!

Wow! The just concluded week was an unprecedented volatile roller-coaster week for SWC on extremely high trade volumes. Let's go over the week and recent history of SWC and see what's going on.

We know SWC started to fall from the $16.47 high in early May, when SWC reported a once cents per share quarterly loss for the first quarter 2007. And then, just as people think SWC has bottomed and started buying, starting on July 20th, some hedge funds launches a fierce wave of hammering of SWC, pushing it down 10% a day, knocking the price down from $12 to the low $8-ish before the start of the week. As I discussed, the big short player was able to lure in new retail shorts by such heavy hammering of SWC, so they can unwind their unusually large short position in SWC. The big short probably finished unwinding their short position on July 30. On July 31, the volume suddenly quiet down, with no more indication of price hammering.

Monday Aug. 6th, people are buying and push SWC close to $9, in expectation of a good Q2 earnings report. Monday night earnings were released, it was a disapointing 3 cents loss. People are all pretty persimistic and expect some further fall on Tuesday. Volume was heavy at 1.5M.

On Tuesday Aug. 7th, before the earnings conference call SWC dipped to the low of $8.03, and then slowly went up as it leads to the earnings confeence call. The stock raised above $9 and closed at $8.67. Very encouraging. Volume was big that day at 2.3M.

Then on Wednesday Augu. 8th, SWC saw an explosive rally. Shot up to $11.04 on unprecedent heavy volume of 3.83M shares traded. It settle at $10.40.

Next day, DOW JONES plummeted big time. It was the second largest daily drop this year. SWC holds up well, only drop to $10.11 on heavy volume of 2.4M.

The most dramatic movement happens on Friday, Aug. 10th. SWC first rallied to the high of $10.84, as the DOW looked in pretty bad shape. Then as the DOW recoverd, SWC turned around and plummeted down to the low of $8.38, before recovering some what and close at $8.66. The volume was almost as high as the wednesday rally. 3.445M shares traded. The after hour was just as dramatic. You saw shares traded at $10.11, and shares traded at $8.64.

What gives? Why the huge rally on wednesday and then the huge plummet on friday, on extremely heavy volumes? It's any one's guess. But looks to me that some funds may be forced to liquidate position because of prior day's DOW plummet, while other funds hurried up to laod up all the cheap shares. There is a huge amount of shares exchanged hands. Institition holdership increased dramatically. Two days ago there were 139 institutions holding 37,143,220 shares. One day ago it increased to 143 institutions holding 37,340,389 shares. By friday close, there were 145 institutions holding a total of 37,453,025 shares.

In 4 days trade, a total of 12M shares were exchanged. Such heavy volume is unprecedent in SWC's history.

Such powerful rally immediately after the stock touched a bottom, and then a heavy plummet to bring to stock back to near the bottom, on extremely heavy volumes, probably suggest a very powerful double bottom formation. This is a good sign for an explosive rally starting on monday. The reason is such volatility really shakes off the weak hands of longs, leaving only whose who can hold the shares to ride the rocket up.

Also a very unusual development on Friday, is Steven S. Lucas, one of the board members, bought 800 shares from open market. As some discussed, Steven Lucas is one with some unusual background with connection to high level GOP and the Bush Administration. This is more of a symbolic market purchase to send a strong signal to the market, rather than just a buy for monetary profit. This is a very good sign.

To understand why Bush's people are on the SWC board, you MUST read this interesting article: Russians Are Coming. You also need to read the August 09, 2004, the Oct. 5, 2004, and the November 16, 2004 article on the matter.

SWC Q2 Earnings In Retrospect

SWC just released Q2 earings. On paper it was a loss of $2.5M, or 3 cents per share, contrary to my very optimistic prediction. Where did I get it wrong, and where did I get it right?

My biggest mistake is assuming they will sell all the recycled metal they have. There are 34K leftover recycled metals from previous two quarters, plus Q2 processed 93.1K, totalling 127.1K. I expected them to sell at least 110K. But they actually sold only 69K. When you don't sell the metal, you don't realize sales revenue and profit on the paper. But the value is still there in the metal, although it is not on the paper. It's an accounting gimmick to pay less tax and preserve more shareholder value. Compare the balance sheets, SWC gained $6M in book value from Q1 to Q2. That is the real story of actual gain, 6.5 cents per share.

In Q1, The net loss of $1.1 million for the first quarter of 2007 included, by business segment, $3.8 million of income from mining operations and $5.3 million of income from recycling activities, less corporate costs including $8.8 million of G&A expense and $1.4 million of unallocated net interest expense.

In Q2, The reported net loss of $2.5 million for the second quarter of 2007 included, by business segment, a loss of $1.4 million from mining operations and $7.8 million of income from recycling activities, less corporate costs including $7.4 million of G&A expense and $1.5 million of unallocated net interest expense.

So, with 69K recycled PGM metal sold, SWC realized a gross margin of $7.8M. Had they sell 100K recycled metal as I expected, linear extrapolation says the recycling gross margin would be $12.435M margin. I projected a way more optimistic $30.42M margin, using the metal prices $368, $1288, $6090 for the three metals. But the actual realized metal price for recycled metals are less, at $355, $1225, $5923. Because I over estimated the metal prices, I over-estimated the gross margin by $11.52M. If I used the correct metal price, the gross margin would be $18.9M, I also under-estimate the cost for the recycled metal, which accounts for another $6.5M difference.

On the mine production side, my projection says Q2 will be about the same as Q1. But the actual result i mining in Q1 provided $3.8M profit margin, and contributed $1.4M loss in Q2. So that's a difference of $5.2M on the worse side. What gives?

I assumed SWC will being mining the same grade of ores. So a reduction of production means less ores are milled, leading to the savings of $3.142M cost. But insread, the ores mined are lower in grade. So SWC actually milled 309K ton versus 305K ton. Milled 4 tons more ores while producing less metal. so the cost of extra tons is $0.55M. So that's a discrepancy of $3.7M. The remaining discrepancy is explained by slightly increased cost per ton of ores milled.

My projection of price of mine prodution metal is quite on spot. Palladium sold at $386, versus my number $384. Platinum sold at $949, slightly less than my projection of $963.

The produced mine grade is 0.46 ounced per ton, versus 0.49 in Q1. That's the main contributing factor in increased cost. It should be a one time thing, not a long term trend.

Focus On Long Term Prospective

It is just unreal that SWC suffered another 7.66% drop after having been beaten down from $16.47 to $9.27 due to heavy shorting by certain hedge funds. SWC will release Q2 earnings on monday Aug6 after market close, or tuesday before market open. We should see a great reversal and a big rally coming.

The drop on Friday happened mostly in the last hour, with low trade volume. Unlike previous sessions, there was little indication of any deliberate hammering of the stock. The low volume drop was mainly due to lack of sellers, and even more lack of buyers here due to marketplace uncertainty. SWC price recovered nicely in after hour, which is encouraging. This article on Financial Sense made good points that now is the time to buy, not time to sell.

But let's focus on long term prospective. I explained before that SWC's future depends on the metals it sale, palladium and platinum. If the metals will do great in the future, then SWC will be a great stock to own. I also tried to explain why I am so sure that the future of palladium will be even more bullish. Let me summarize the points here:

0.PGM metals are first and foremost catalysts in lots of vitally important chemical reactions critical to a nation's survival and prosperity. Without PGM catalysts, oil refinery becomes impossible and you will have no gasoline to drive your car, and no airplane fuel to fly your F-22 jet fighter. Without PGM you can not produce synthetic fiber material that is used in the textile industry, 75% of the world's population will have to go naked for lack of clothings. Without PGM catalysts, production of fertilizers becomes impossible. The agriculture will collapse and 90% of the world population will die for lack of food. A modern nation can not be without these critical metals, regardless of the price. Few countries produce PGM metals. Countries that doesn't produce PGM, like China, India, Japan, will have to hoard PGM metals, or may already started to do so, when they realize how important these metals are. Read this article which criticize the Bush Administration for allowing a critical stake of SWC be sold to Russians cheap.

1. Russian stockpile dump and strong investment demand. Russians are dumping their stockpile of palladium, accumulated during Soviet Era, at a fast pace of 1.8M to 2M ounces a year. Because of the Russian dumping, virtually ALL analysts believe that the palladium market is over-supplied, and that palladium price should plummet uncontrolably. Instead palladium price rallied and near tripled from the 2003 low of $145 an ounce. This chart shows a suddem boom of investment interest in palladium starting in the second half of 2003. One or a few big players suddenly sees a great investment opportunity in palladium, and started load up all the ounces the Russians sell. Clearly this secret player is determined for a really long term gain, unswayed by any temporary market up or down. All the Russian palladiums are being hoarded by and not sold to industry users. What this player sees that we do not see? For one thing we know Russians will eventually run out of their stockpile(and Pretty soon, too!). There will be a shortage by then;For another we know several emerging new applications that will make palladium HUGE. Smart money saw the potential before any one else and they are betting big time on palladium, and probably for very good reasons.

2.Fuel Cell applications. Fuel cell is a hot topic today. Every one talks about fuel cell and the exciting prospective of wide usage. But few realize that fuel cells use platinum and palladium for catalyst, and palladium is used to store and purify hydrogen. You can not make fuel cell without palladium, period. Fuel cells are making big move into the portable device market, like cell phones. Imagine a cell phone that can go months without recharging? It's becoming reality very soon and will make a huge debut, maybe later this year. It must consume lots of palladium. But the real biggie is hydrogen fuel cell battery powered vehicle, several big auto makers put many billions of dollars into fuel cell vehicle research and it is coming into reality fast. I do not know how the world can supply enough platinum and palladium to make all the fuel cell vehicles? But I guess auto makers are betting on the possibility that technology may one day reduce the amount of PGM metals used per fuel cell, and that skyrocketing price of the PGM metal may stimulate exploration activity so people go dig more PGM mines to satisfy the demand.

3.Palladium jewelry demand. Palladium jewelry is booming. There is a revolution going on that people suddenly discover palladium to be such an awesome metal suitable for making jewelries. It's more affordable than platinum, more durable and rigid than gold, less heavy than platinum so bigger pieces can be made. Jewelry makers instantly fall in love with this metal. Read Mr. Platinum becomes Mr. Palladium!

4.The real huge thing for palladium, I call thermal nuclear explosion, is cold fusion!!! I only recently became aware that cold fusion MUST use palladium due to the metal's affinity to hydrogen and deutrium atoms. Cold fusion was first discovered by two scientists and it shocked the whole world when they announced it in 1989. Most scientists were skeptical and they were quick to dismissed and discredit the research when other research groups had a hard time duplicating the experimental results. But they believed the results were real and continued the research after being kicked out. Over the years hundreds of research groups around the world were finally able to duplicate the experiments, and verified that the cold fusion results are absolutely real although they are difficult to be repeated reliably. Interests are picking up, several startup companies are aiming to release commercial products soon, like D2Fusion. And even the American Physical Society arranged separate sessions dedicated to cold fusion, during recent annual meetings. Even some Nobel prize winners are convinced of cold fusion and call for research funds to study the subject.

Cold fusion is huge, once commercialized, cold fusion will provide virtually limitless energy and possibly put an end to the looming energy crisis caused by depletion of fossil fuels. It could easily drive the palladium price up to thousand times that of the price of gold, and it will still be cheap when cold fusion provide you with the tremendous amount of energy.

Where would SWC stock price be if cold fusion becomes a reality? They will be rich enough to send a private science exploration team and beat NASA to reach the Mars first and search for new palladim mines on the new planet!!!

Buy SWC on monday while it is still dirt cheap. And hold the shares tight. This is something HUGE that you must hold for long term gain! Somebody knows it's huge. The some body who loaded up ever ounces of palladium that the Russians are too stupid to sell so cheaply. The somebody who relentlessly knock SWC price down so you are forced to sell and so they can load your shares. Don't be fooled. SWC has a very bright future!

Concentrated Big Short Player Gone

Based on my observation of the SWC daily chart for July 31, August 1st and today, August 2nd, I have to draw an incredible conclusion that the concentrated big short player is gone!

Note I am NOT saying the shorts are gone. The outstanding shorts in SWC is probably still more than 6M shares. But the big short player is gone, replaced the big short are a whole lot of new shorts who are the day traders who get lure in because of the relentless hammering of SWC that every one saw in the last week. Some clueless day traders must figure this is a company on the brink of bankruptcy, and figure they can short this one safely. That's exactly what the big short player wanted. When new retail shorts come on board, they can cover and unwind their position and walk away with their profit.

Why the big short player is gone? Because those relentless hammerings of SWC are all of a sudden absent from SWC daily charts for the past three days. Tuesday, July 31, the volume suddenly dropped. Wednesday the volume is slightly higher due to general market jittering, but I see no serious attempt to hammer down SWC. Today, wednesday, the volume is pathetically low. If the big player is still here and still want to hammer down SWC, there are plenty of opportunity to do so and push SWC down rapidly. Longs cautiously buy here, scared of the prospective that the short may suddenly assault again. But no short assault happened. So that's really good news to longs.

We are only two trade days away from SWC's Q2 earnings release. I am excited. As I explained, based on my best estimate, SWC should report a profit as high as 27.9 cents per share, while the street consensus only give SWC a break even. If the actual earning comes out beat the street by such a huge margin, I fully expect a great rally, and a fierce short squeeze of the full 6M retail shorts trapped here. The float shares of SWC are just too narrow to allow 6M shorts to cover and unwind.