The Brightest Stars in the Commodities Boom Part Two

Wow, what a slaughter in the coal sector on Wednesday, July 2nd, 08, as coal spot price plummeted nearly 10% in one day! I have warned on June 20 that there was something not right in the coal sector. The coal rally has gone too far too fast. The basic numbers of supply and demand does not warrant such a strong coal rally. I warned folks invested in coal stocks to take profit now, and move to other, more bullish commodity sectors. It's been proven correct and timely. Coal stocks peaked on June 23, right after I issued the warning.

Let's survey the damage: JRCC closed at $62.14 on June 23rd, and at $44.15 on July 3rd, a drop of 28.95%; NCOC went from $10.55 to $6.39, a drop of 39.43%; PCX went from $145.99 to $126.73, a 13.19% drop; MEE went from $93.38 to $75.46, a 19.19% plummet. In one day July 2nd, BTU dropped 9.3%; ACI saw a 17.2% haircut; ANR slashed 16%; CNX -14.6%; FCL - 11.7%; FDG - 12.7%; ICO - 19.7%. What a catastrophe in this whole sector. I believe coal is bullish long term. But there is no fundamental justification for coal price to triple in just 6 months.

Almost all traders focused their attention to NYMEX coal future trade, or Australian Newcastle Port coal spot price, which continues to climb up at scary pace to this day! But on a typical day about 20 contracts for any particular month are traded on NYMEX, with each contract worth 1550 tons. In a typical week about 2 million tons of coal is loaded to ships docked at the Newcastle Port. Those numbers are a drop in the bucket comparing with the scale of global coal supply and demand, which according to BP is over 3 billion tons a year, or nearly 6 billion tons according to other sources.

What people don't understand is that the global coal market is largely a LOCAL market. Shipping coal half an earth away is too expensive and getting ever more so with skyrocketing oil price and extremely tight global dry bulk shipping capacity. Good luck for any major US coal producers to sell thousands of future contracts on NYMEX when the daily trade volume is only 20, or find enough ships to shop the bulk of their production to Europe. They really can't rip profit from current high spot price either buy selling futures contracts, or by shipping a considerable portion of their coal production overseas. If they do, they merely collapse the NYMEX futures market, or simply drive up the dry bulk shipping rate to sky high levels that force international coal buyers to stay back. Good fortune to the Aussies, though. Producing only 6.9% of the world's coal, they are nevertheless the world's Saudi in coal, with 75% of their coal production exported in the first place.

Global coal exports can NOT expand significantly due to the bottleneck of global dry bulk shipping capacity. The Europeans might be so desperate that they are willing to buy coal at $200 a ton and want to import more. But they will not pay $200 a ton at Virginia harbors. Instead they probably pay $60/ton to Americans and then pay $140/ton to the Panamans (the ships). So if you really believe the global coal export market is tight, sell your coal stocks and buy dry bulk shipping stocks like DRYS, DSX. The bottleneck of coal market is NOT coal production, but coal shipment across the oceans. Don't be misled by the coal spot price at shipping ports!

I insist on looking at commodities at their basic supply and demand numbers, and future trend, and how elastic or inelastic the supply and demand responds to price changes. I don't think coal is the best long term commodity play judging from all I see.

In last article I mentioned the spectacular price rally of the PGM metal, rhodium, on a mere 4% shortage. Let's look behind reasons for rhodium's its stellar performance as it gives us a perfect example what makes a superstar in the commodities boom. I will then talk about prospect of PGM demand in the auto industry in light of the auto sales drop recently. Finally I will talk about another spectacular minor metal called cobalt.

According to Johnson Matthey's Platinum 2008 Yearbook, annual rhodium supply in 2007 was 822,000 ounces, while demand, net scrap recycling, was 856,000 ounces. The net shortage was only 34,000 ounces, or 4% of the demand. Such an insignificant shortage was enough to drive rhodium price to $10000 per ounce in 5 short years! So what is rhodium used for, and why it's so price inelastic?

Rhodium has two unique characters among the PGM metals. First, it's the most rigid and has the highest melting point among PGM metals. Second it is the only one that facilitates chemical reactions involving nitrogen, while being the only one strong enough to resist even the nitric acid. These two characters make rhodium virtually indispensible in all its applications.

Biggest demand of rhodium, over 81%, is usage in auto catalyst converters to neutralize the harmful nitrogen oxides (which are responsible for the acid rains) into harmless nitrogen, a role neither platinum nor palladium can play. There is no replacement possible and there is only so much auto makers can do to reduce the rhodium loading. If sub-standard catalyst converter is used, the vehicle may fail to meet the emission control standard after a few years of usage, so replacement will be required and it actually ends up increasing the rhodium demand.

Rhodium is also used as catalyst in a number of very important chemical processes, including the Ostwald Process to produce nitric acid, and the Monsanto Process that produces acetic acid. Nitric acid is the basis of the nitrogen fertilizer industry and a whole family of many chemical products. Acetic acid is the basis for a whole family of chemical products we see in our daily life, including wood glue that holds our furniture together, and plastic soft drink bottles.

Rhodium alloyed with platinum is also used in making high quality glass, including glass used in LCD displays, like computer monitors and big screen LCD TVs. High purity rhodium is made into the crucibles used in the production the high quality optical fibers used in high speed computer networks. The crucible is essentially just a container for the fused glass. So why must it made of pure rhodium and not any other metals? Because the fused silica material in the optical fiber used in long distance computer networks are extremely pure and extremely transparent. It's more transparent than even the air. This allows light to travel many kilograms in the optical fiber without much attenuation, enabling long distance communication using the light signal. In making such material of extreme purity, crucibles made of almost any thing would dissolve just a tiny bit into the fused silica, hence induces impurity and renders the material useless. Only rhodium, the toughest of all PGM metals, is perfectly rigid and inert, with very high melting point, and does not induce impurity into the material.

Without rhodium, computer fiber optics networks would not be possible, production of nitrogen fertilizers would not be possible, a lot of synthetic materials would not be possible to make. You look around yourself, 60% of all the stuffs we use everyday have something to do with rhodium in one way or another. Don't you think then such a magical, indispensible noble metal really should be worth more than ten times the price of gold?

Without gold, life on earth goes on and nothing much has been missed, without rhodium, half of the world's population would not survive because there will be no nitrogen fertilizers to boost food production to feed the hungry population. Without rhodium, companies like Monsanto (MON), Agrium Inc. (AGU), Potash Corp (POT), DOW Chemical (DOW) will have to shut down a major portion of their businesses. That's the whole reason why rhodium, at a mere 4% supply shortage, can reach such astronomical price level, US$10000 for one troy ounce.

The lesson from rhodium: A commodity that is in shortage, and that increased production is unlikely, and that is absolutely essential and indispensible in critical applications, will likely be one of the brightest stars in the commodities boom.

Most rhodium is produced in South Africa and Russia. But one of my two favorite palladium producers, Stillwater Mining Inc. (SWC) in Montana does produce 4,000 ounces of rhodium a year, and recycles about 28,000 ounces from spent catalyst converters. These are not trivial numbers consider that each 100 ounces of rhodium is worth one million dollars!

I have talked in the past that due to the ongoing South African electricity crisis disruption the supply of PGM metals, platinum and palladium; imminent depletion of the Russian government stockpile of palladium; increasing requirement of these metals in auto catalytic converters; emerging new applications of these metals; more over, due to strong investment demand, platinum and palladium will be extremely bullish in the next few years. The best way of leverage the platinum and palladium bull will be to buy the stocks of PAL, North American Palladium, and SWC, Stillwater Mining.

But first I need to address many people's concern that slowing US auto sales and slowing jewelry demand may hurt PGM metals demand. My viewpoints are that you need to study the details to get the accurate picture:

1. Auto sales in China, India, Russia and other emerging countries are booming and the increase more than offset the shortfall in the US market. China's passenger car sale increased 17% year over year. Combined with commercial vehicle sales China's auto sale now exceeds 10 million unions per year. The foreign auto sales in Russia are growing at 54% annual rate. GM reported record Q1,08 auto sales in Europe. Looking globally, the demand on automobiles is very strong. You only need to check out recent gasoline price raise to realize the fact that the world has an insatiable demand on automobiles.

2. Customers are increasingly looking to buy small fuel efficient cars, but auto makers do not produce enough of the small cars to meet demand. They over-supplied the market with oil guzzlers but do not have enough small cars for offering. As auto makers adjust their production plans accordingly to meet customer demand, I actually see a booming new car market in the next few years. The reality of high oil price is forcing many people to retire their oil guzzlers well ahead of time. They need to buy smaller, more fuel efficient cars as replacements to continue to meet their daily commute needs. Simple math! Assuming you drive 12,000 miles a year, keeping a SUV that gives you 15 MPG for the next 5 years costs you way much more money than buying a brand new Prius that gives you 60 MPG, consider that gasoline will go to $5, $10 or even $20 a gallon.

3. There is a myth that higher platinum or palladium price may suppress jewelry demand. Annually the amount of PGM metals used in jewelries is a couple million ounces, or roughly 0.01 grams per person in the world. Clearly platinum and palladium jewelries are NOT for every one. There is only enough metal for the wealthiest 0.08% of the world's population. Platinum and palladium jewelries are mostly for high end jewelries, like bridal jewelries. A typical diamond wedding band set probably cost $5000 or more, and contains maybe 6 grams of platinum. The metal cost is worth about $400, far less than the diamond itself. Platinum price goes up from $1500 to $2000 only increase the cost of a $5000 diamond ring by $100. A typical American wedding costs US$50K to US$100K. A typical Chinese wedding costs US$10K to US$50K. No one will cancel a platinum diamond wedding ring just for $100 extra cost!!!

4. John Reade did not know that year 2008 is a big Chinese wedding year. As the number of weddings will double, so will the purchase of bridal jewelries. He probably observed how jewelry dealers responded to PGM price changes and concluded that demand in this sector was pretty price elastic. It's absolutely wrong. Jewelry dealers, like any trader, always seek to reduce their cost, so they tend to double their purchases when the price drops a few dollars, and slash their purchases or even sell some, when the price rally a few dollars. But at the consumer end, the demand is not price elastic at all. At the end of day jewelry dealers will have to buy at any price to meet that consumer demand.

But most analysts missed two big issues on PGM metals fundamentals. One is investment demand on the physical metals. The other is the demand of industrial users to hoard stockpiles to secure their supply, especially in light of tight supply, and that investment demand may squeeze the already tight supply, and even worse, the possibility that some investors might intend to corner the PGM market.

The investment demand on physical PGM metals is very real. One only needs to look at the rapid increase of the physical metal holdings at the ETF Securities. Based on the dollar value of latest holdings of ETF Securities, the percentage of investment interests are respectively: Gold 54.90%, silver 7.78%, platinum 32.54%, palladium 4.78%. Such percentages reflect a very strong investment demand on platinum and palladium, if you consider how narrow the PGM market is in relative comparison to the gold and silver market.

Many gold bugs pitch gold as the best hedge against inflation. My opinion is any physical asset probably can be used as hedge against inflation, and contrary to common myth, gold is the WORST of all inflation hedges. Just ask the people who bought gold neat the $800 peak in 1980, or people who bought before the peak, but held right through the peak and eventually sold at a loss. In the next wave of gold maniac, it's quite possible gold may actually reach $2000, $3000 or even higher. But do you actually gain in real term of purchase power?

Gold might be useful to people who has too much money to be invested in anything else but gold, because everything else has a market capital way much less than the gold market.

But even Warren Buffett doesn't like gold. He had this to say:

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it
down, dig another hole, bury it again and pay people to stand around guarding
it. It has no utility. Anyone watching from Mars would be scratching their
head.

Almost every one laughed at Warren Buffett's gold comment. I did at one point. But after giving it some thought, I found that he actually said something in wisdom.

Why humanity continues all the efforts to dig gold out of the ground, when the world has already accumulated enough gold to last a thousand year? Why do we spend all the energy, resources and human efforts to mine something that we already have plenty? It doesn't make sense especially at a time when we are fast depleting our limited fossil fuels and other natural resources. Our efforts could be better spent on producing something that is useful, and that is in short supply.

I would rather buy SLV and PGM metals than GLD. But now I have found something way much better than silver: the metal cobalt. It is rare, in short supply, and the demand is surging due to increased production of batteries used in hybrid electric vehicles, and increased demand on special alloys containing cobalt. I believe this metal will do way much better than silver in the next few years. If you know a place where folks can buy small quantities of cobalt metal, please share the information with me. I will talk about this magic metal in greater details in my next article. For now if you are interested in cobalt play, have a look at a stock called OMG, "Oh-My-God", which I first noticed during its run up from $35 to $60. I think now it's cheap to buy.

P.S. The author is heavily invested in SWC and PAL, and holds shares in OMG.

The Brightest Stars in the Commodity Boom Part One

Thursday sees the market's knee jerk reaction of oil dropping of $4 a barrel, in response to China's announcement of gasoline and diesel price boost of 16%. Most traders perceived higher price will supress Chinese demand on oil. They know nothing about what's going on in China. After the price boost, gasoline still costs only US$3 a gallon, far cheaper than prices in the US and Europe. It will not supress demand at all, consider that only wealthest 3% of households in China own a vehicle. The Chinese transportation fuel market is in severe short supply. Refineries are unwilling to increase production because the crude prices are high, while the refinery product must be sold at government controled low prices, well below cost. The government hopes the price boost will encourage refineries to INCREASE fuel supply to ease the shortage. It actually will boost oil demand. Consider buying USO for a quick rebounce once the market realize they got it totally wrong!

Commodity guru Jim Rogers is my hero not only because he correctly predicted the commodity boom as early as 1999, but because the way he does market research and due diligence study is very inspiring to me. His millenium adventure around the world, which I recommend every one to read in his bestseller books, was not a safari, but a real adventure with real danger to his life. I do not think I can be as brave. I wish I knew him and read his books earlier. Commodity investments provided some of the most spectacular returns in recent years. You look at the spectacular chart below. Don't you wish you have bought some rhodium in early 2004? Me? I wish I had studied about CD-RW and bought tellurium in earth 2004 for $10. I want to talk about rhodium in more details in a later article since this is a very interesting case study on how to find commodity super stars, before they shine.


Jim said the commodity boom is far from over, which I agree. Although the current commodity bull cycle started in 2000, many of the raw materials did not start the earnest rally until pretty recently. Copper did not take off until late 2003/2004. Food grains and fertilizers did not take off until early 2007. As for coal, it doesn't make much movement until early 2008 when it all of a sudden rallied spectacularly, running from $45 a ton to well over $160 per ton in a few short months, surprising every one including me. I had the vision to load up heavily the coal mining stock JRCC at $4 last year, but did not have the foresight to see that it could reach almost $60 today, in just a few short months.

JRCC gained 15 fold in 10 months, or more than 12.5 fold in exactly 7 months. How often do you see such an incredible rally. How you wish you have grabbed that opportunity. I did catch it at the start but did not hold it through the whole course. I remember on Nov. 19, 2007 I was watching JRCC and I really wanted to buy it back but I had no dry powder. I knew I was giving up an opportunity but never knew how big an opportunity I had gave up. I wish had paid closer attention to the coal market and discovered this article last year.

Of course, JRCC is not the only coal stock that see spectacular rallies lately. There are a dozen others, PCX, BTU, ACI, CNX, FCL, FDG, MEE, ANR all gained tremendously.

How do you discover such bullish commodity players, before they take off, and how can you hold on to them for the whole course? And even more importantly, how do you decide your exit strategy? One word, due diligence research. If you know the market fundamentals and supply/demand trends, you can spot a bullish commodity player before it takes off, and you will have the conviction to hold through the highs and lows to rip full profit potential, and you will also know when it becomes over-valued and it is time to move on.

Coal's recent rally far exceeded my original expectation. I believed coal was bullish but I thought it's a long term play, at least 2 or 3 years out in the future. It is worth going back and re-example my original assessment of the coal market, and see if I missed anything.

As I discussed before, for any commodity play you need to exam the supply/demand relationship to see how bullish it is. You concentrate on several things:

• Is the natural source of the raw material scarce or abundant?
• What's the supply/demand numbers. How bad is the shortage?
• How price elastic is the supply. How high does the price need to go to boost supply, and how soon will it happen?
• How price elastic is the demand. Can demand be reduced or replaced if the cost is too high. How high the price need to go to cause that to happen?

I looked at all four criterias for coal and could not find a very solid bullish case. Global coal reserve is still abundant, worth a few hundred years of production. The global coal supply and demand figures in 2007 were 3135.6MT and 3177.5MT respectively. The shortage was 41.9MT, about 1.3% of annual demand. A very small percentage of shortage worth about 5 days of global consumption. Coal is mostly used as fuel in power stations, which often stock up to 3 or 4 weeks worth of coal. That should be plenty of buffering to absorb 1% or 2% of shortage in any given year. From the price elasticity point of view, the high coal price can not last long. China's coal production in 2007 was up 7% year-over-year. Recent news indicate that due to higher prices, the largest coal producer in China is boosting coal production at an annual pace of 13.3% or more. The global coal shortage may end soon right when every one is talking about higher coal prices.

So why did coal price double or triple in just a few months? I guess several reasons.

1. Global coal market is huge. But most coal supplies are already tied up in multi-year long term supply contracts netween producers and power stations. So the amount of coal available on the spot market is pretty limited and so is very sensitive to any temporary supply disruptions.
2. Mid to long term, both the coal supply and demand is quite price elastic. But in very short term, both supply and demand could be completely price inelastic. If a power station is running low on coal reserve and face the danger of shutting down electricity, they pay any price to ensure uninterrupted electricity supply. Mean while disruption at Australia's Newcastle Port forces many dry bulk ships, up to 30 at a time, waiting for weeks to be loaded with export coal. Can't load faster no matter what price you pay.
3. A few global events caused short term supply shortage. Those include the disruption in Australia's NewCastle Port, a major coal export port. By the end of last year, the Chinese government launched a crackdown which shut down a whole batch of small scale private coal mines operated under unsafe conditions, removing a significant portion of the production. As the coal shortage becomes evident, the government is now urging those small coal mines to resume production as soon as possible, when safety has improved.
4. It can not be ruled out that international hedge funds may be speculating on the coal market and bid up the price on the futures market.

Currently most coal mining stocks are prices so high that their prices are justified on the basis that coal price will continue to climb, and will stay high for the foreseeable future. If you look at the history of coal prices there have been periods of quick booms and bursts. JRCC itself emerged from a bankruptcy just a few years ago, and it is still heavily in debt today. So my advice to all the folks holding coal stocks is to sell now and move to something else. I am not calling a top, few people can recognize a top right when it occurs. I am definitely not calling for shorting coals. In all likelihood, the coal fever may well continue for some time and make new highs, but the big crowd has arrived. When big crowds arrive it is often time to move on to something else. There is always a bigger opportunity some where else where the big crowds have not gathered yet.

The biggest crowds in commodity investment probably concentrate on oil, coal, alternative energy, and gold. The gold crowd is too crowded. Today you can not visit an investment site or even tune to a radio or TV station, without hearing some one pitching gold. The most famous gold bug operate a free web site which I read daily. I appreciate the education on fiat currency, the credit crisis and the need of individuals to protect themselves from inflation. But why should gold be pitched as the only good hedge against inflation, and no mentioning of other precious metals, like platinum, palladium, even rhodium? I don't buy gold! You have nothing to gain in gold, in real term, comparing with other physical commodity investments. The only way you can make profit from gold is when you sell it to another gold investor, who just like you, hopes to be able to sell gold for yet higher price to the next gold investor in the line. Pretty much sounds like the bigger fool theory? The world has accumulated 320,000 tons of gold. There is never shortage of gold.

Relatively, the palladium investment crowd is far smaller and far quiet. Lots of gold bugs and silver bugs on the internet. But I have yet to find a palladium bug. Even the respected metals analysts don't understand the palladium market. Year after year they made bearish predictions based on the notion that Russian stockpile palladium flooded the market, each year they were proven wrong as palladium moved up and they scratch their heads wondring why they were wrong. Does it really stretch the mind to understand that Russian stockpile HAS to run out one day, and that will result in an industrial shortage, sending the metal price flying? Look at the sudden boom of investmenet interest since late 2003. Some one must had a Eureka Moment at that time and had been quietly loading up on this unprecedent investment opportunity ever since, driving the price up.

And now, on Nov 11th, 2008 the Russians themselves admitted they are running out of palladium stockpile. Is there any wonder that palladium price surged 12% in one week time since then? People are getting it and jumping on the wagen but unfortunately even a highly respected and award winning metals analyst, Rhona O'Donnell, didn't get it at all! She believed there was still some palladium stockpile some where "available to the market".

Hello! Whoever hoarded palladium since 2003 do NOT do it for a global charity. It's for making money! If the price is not right, it is NOT "available" to any one at all. On such notion of "large stockpile available", then shouldn't some one argue then that gold price should fall just because there are huge stockpiles in the world? No one ever made such a ridiculous argument. Whoever hoarded palladium waited exactly for such a Russian checkmate moment, and now the Checkmate Time in palladium is coming rapidly. The data contained in the Rhona O'Donnell article confirms that without Russian stockpile palladium, the market is in a pretty big gap of supply shortage. Do you notice that the palladium lease market may be halted?

Could palladium be the next rhodium? It could be possible. At least it's a way much better physical metal investment than gold. So you can never go wrong buying some palladium coins or metal bars. Of course, buying the stocks of the only two primary palladium producers in the world, SWC and PAL, may provide higher leveraged investment gains.

PGM metals are unique. Unlike gold, whose largest demand is investment demand, which is unpredictable and can not be counted on. PGM metals are critical to many important industrial applications whose demand can not be supressed even at very high price levels. But at the same time, the physical metals can also be hoarded away by investors, increasing the physical demand and adding to the shortage, driving up price. The global PGM market is so narrow and so tight that minimal investment demand can send the price to very high levels.

That is quite different from other commodity investments. I buy SWC and PAL stocks but I also buy physical palladium metal bars. All your folks who buy coal or oil stocks, do you also stack up a ton of black coal or a couple hundred barrels of crude oil in your backyard. If I visit Goldman Sachs office, do I expect to find a truckload of coal just delivered? No, there can never be any real physical demand from speculative investors, not even in the futures market. All trades are done on paper and when the contracts is about to expire they roll it to the next month. No delivery is ever taken so there is no physical investment demand in coal, oil, food grain etc.

I think I would rather invest in something that can be physically hold in my hands. But maybe I will just buy enough USO to hedge the gasoline price I pay at the pump, UNG to hedge my monthly natural gas bill. Finally read an interesting speech by Kevin Crisp which explains why PGM metals are critically important to the industries.

P.S. The author is heavily invested in SWC and PAL.

A Few World Events Bullish for Metals

I noticed a few important world events happened in the last 24 to 48 hours and triggered dramatic rallies of a few related metals, including palladium, platinum, nickel and aluminum. Let me discuss those events.

First, something that must be described as a paradigm shift event in the palladium market. No one noticed this Bloomberg news except for a few fast thinkers, who immediately responded. Palladium price instant jumpped up $12. But more spectacular is the spike in the palladium lease rate. I have NEVER see such a big lease rate spike in any precious metal! Please read this to understand the significance of metal leasing rate.


Quote from the news:

The metal (palladium) rallied after Russia's OAO GMK Norilsk Nickel, the world's biggest producer, said its stockpiles of the metal may be "depleted'' in one to five
years as the government reduces its holdings.

One to five years? Why such a big margin of uncertainty? I think they are really explicitly saying it's zero years, there is virtually no more government palladium stockpile left. This is a gigantic paradigm shift event that palladium investors have been waiting for for years, and that many speculate it is getting closer, the depletion of Russian palladium stockpile. This is a paradigm shift because over past years, massive Russian stockpile palladium sale, up to the tune of 2 million ounces per year, was the reason that the Pd market was in surplus. But the stockpile has to be depleted one day, and when it happens, the palladium market shifts from structural surplus to a large structural deficit, which is extremely bullish. Some strong hand investors have been waiting for this since 2003, as I discussed before, and looked at again recently. Read today's mineweb piece: The Russian palladium stockpile - do we need to worry?

Second event that just happened, is also very significant. Nickel rallied strongly up 6%+ on Thursday, as investors now believe nickel is in supply shortage again, rather than surplus. This is caused by the supply disruption due to the big natural gas blow up in western Australia. But more importantly, BHP announced today that it shuts down the Kalgoorlie smelter for at least four month, removing 2% worth of the world's nickel supply. This news is quite bullish for nickel.

Third event came from China. A whole batch of nickel producers in China are shutting down production. During the strong nickel rally which peaked at $50/kg in may, 2007, a number of producers of the so called nickel pig iron emerged. The nickel pig iron production process is highly pollutive, energy intensive and costly but was profitable at $50/kg nickel price. As nickel pig iron flooded the market, nickel price now drops to an unprofitable level for these producers. On top of that, electricity tariff has been inreased by 170%. The higher cost forces producers to shut down. Another reason is China is preparing for the Summer Olympics and so a whole lot of air polluting industries were ordered to shut down in order to clean the air pollution. As a result, now traders widely believe that the nickel market has turned around to supply shortage again and price must surge.

The year 2008, China Olympics Year, is a pretty big deal in China. The folks consider the number 2008, which ends with an 8, a lucky number, on top of it, Olympics is first held in China. So there are lots of jewelry and souvenir buyings and lots of young Chinese couples are getting married this year, boosting demand on precious metal wedding bands. This development is bullish for both PGM metals, palladium and platinum, as I talked before.

But the most important development as far as PGM metals are concerned, of course is the PGM production disruption in South Africa, due to the on-going and long lasting electricity crisis there. Many people noticed the headline on January 25, 2008, and then soon forgot about it and assumed that everything is back to normal again in South Africa. The electricity supply there is far from normal and it is actually getting worse, and more bad news from ESKOM are revealed as days go by. I often visit the ESKOM web site and click on the Media Rooms->News on ESKOM link. So I keep track of things happening there.

ESKOM now claims that the electricity crisis will last at least seven more years. After tracking the news and analyzing the data from ESKOM, I draw the conclusion that the South African electricity crisis is more than just a problem of outdated facilities and lack of electricity generation capacity, but a coal supply problem as well. Most importantly it is a money problem. And sealing it all, it is a problem of lack of leadership and lack of vision, not just in ESKOM, but in South Africa Government, and even within the people of South Africa.

Money buys you things and pretty much fixes everything. ESKOM could get new electricity capacity built and coal supply secured, on a fast track, to fix the electricity supply problem, IF it had the money. But it does NOT have the money. It is broken, bankrupt! That's a fundamental problem. With money, most everything can be solved. Without money, nothing can be fixed.

It's a problem when you run a country on socialist principles instead of on free market. South Africans pay the lowest electricity tariff in the world when energy cost is skyrocketing: 11 cents per KWH for foreign customers, 17 cents for domestic industry, and 41 cents for households. That's in South African Rand. Divide it by 8.1 to convert to US$. It cost far more for ESKOM to generate the electricity, than it gets paid.

Let's look at ESKOM's 2007 Financial Report. Electricity tariffs collected was R40.068B (US$4.95B). Cost to acquire fuels, namely coal, natural gas, diesel and uranium, was R13.040B. ESKOM distributed 241.170 billion KWH of electricity in 2007. So average tariff was R0.166, or US$0.0205 per KWH. I think we in America are now paying up to 25 cents per KWH! Using the energy equivalence calculator, and use quoted energy efficiency of about 35% of SA power plants and that they use the low quality coal (lignite), it costs about 0.59 kilograms of coal to generate one KWH of electricity. So they burned roughly 143 million tons of coal in 2007, roughly nearly half million ton per day.

And it costed ESKOM only R13.040B to acquire the coal and other fuels? That's only R91.20 per metric ton of coal, or US$11.26 per metric ton. Where did ESKOM get coal so cheap? Where can ESKOM continue to get such cheap coal? Internationa coal price is now approaching $160 per metric ton. The Indians are happily coming to South African harbors and pay well over US$100/ton thermal coal at free on board basis. I am quoting this, which is just hilarious:

I think it just reflected poorly on Eskom in terms of their coal purchasing.
After the mining indaba in Cape Town in February it was quite amazing - we
were flying in to have a look at the Camden Power Station with two to three
days supply in front of it, and it just so happened that at the time there
was a train with 200 wagons of export quality thermal coal chuffing past.

Clearly ESKOM doesn't have the money, and can't compete with foreign customers for South Africa's coal. I can not believe they paid US$11.26 per ton. Using trucks to transport coals to the power plants would cost more than that, even if they get the coal for free from mines. The root of problem is South Africans are paying too little for electricity. That's the whole reason ESKOM wants an immediate 53% tariff increase. But every one said NO and Mboweni wants only 6% electricity tariff increase, and the labor union is planning a massive strike against the electricity tariff increase.

With no hope of dramatic increase of tariff income, ESKOM must borrow money to fill the hole of coal cost. But who would lend knowing they can't pay back? South Africa, with double digit inflation rate, above 35% unemployment, and people impossible to accept a 53% increase of a super cheap electricity tariff, is a broken system with broken leadership, and there is no hope of fixing the electricity crisis any time soon. With winter approaching, it's almost guaranteed they will run into another round of deep electricity supply crisis, disrupting mine productions, including PGM mines.

It's important for people to pay attention to what's happening in South Africa, because PGM supply shortfall there provides a virtually guaranteed bullish case for palladium and platinum. That turns North America's only two PGM mining companies, PAL and SWC, into extremely excellent investment opportunity, with high reward virtually guaranteed in the near future.

The recent nickel rebounce further strengthens the bullish case for PAL, who produces nickel as a significant byproduct. I am also trying to look for other cheap nickel players. Norilsk Nickel (NILSY) has fallen down from recent high but it is not cheap at all. I noticed that FNX Mining (FNXMF.PK) has recently been added to the naked short list. The price seems to be at a low level. I need to spend more time research it. But many times, stocks on naked short list may rally strongly on ensuring short squeezes. One example is LDK's rally from its recent lows in March. I noticed there was heavy naked short going on on LDK at that time, so I curiously watched and surely it put up some nice rally when the nakes shorts covered.

Some one asked about aluminum stocks. Many aluminum stocks had been red hot and have since fallen from their recent highs, like AA, ACH, CENX, KALU, NX, SPSX, TG. All of them have fallen down, even though aluminum price is still near its historical high. Why? Are these aluminum stocks at a good price to buy? ACH caught my attention in mid August, 2007. I watched it rally from $40 to $80, but I wasn't impressed at all and never thought about buying it, now ACH is right back to below $40.

The reason I never got interested in aluminum, is because as a natural resource investor, I know aluminum is a virtually unlimited natural resource. You could never exhaust the aluminum mineral reserve of the world. Production of aluminum is just a matter of transporting the raw material, and then producing it using electricity. When the supply is tight, any one can spend some money set up a shop to process aluminum, so the competition diminishes profit margin. And then skyrocketing energy cost really cuts into the corner of any aluminum producers. That's why I could never become interested in any aluminum player.

For any natural resource player, you need to look into the basic economic fundamentals of supply and demand. Look at where the raw material comes from. Is it scarce or abundant? What's the cost of processing it. Also look at the demand side, is it price elastic or inelastic.

Using these principles, I am not too big a fan of coal. I really liked JRCC and bought it at $4 a share only because I found the share price incredibly low, the price/sales ratio was incredibly low, and the quarterly loss was only a small fraction of the sales revenue, and I knew coal price has got to go up. But coal price has gone up too far, too fast and I do not think it can last. Nowadays you can not go to a financial web site without seeing names of coal mining companies being mentioned by every one, like PCX, ACI, APA, BTU, JOYG. If every one is talking about coal stocks, that sounds a bit like a bubble. the world still has plenty of coal reserves left. According to recent BP survey of global coal production, consumption and reserve, global coal supply/demand is roughly in balance. The shortage is no more than 1%. So any disruption is local and temporary in nature. Recent coal price raise of double or even triple is not warranted by the supply/demand relationship and could be in large part attributed to speculator bidding price up.

My advice is it may be time to sell your coal stocks before they reach the top. Move on to something else. don't try to catch the very top, which few people can do. I would think natural gas is way much better than coal. Natural gas is limited, depleting faster than oil, and is less talked about than oil. have a look at natural gas stocks like CHK, SWN, CNP, NGAS, NFX, WMB. The Atlantic hurricane season is coming and natural gas may get a boost if this hurricane season is relatively active and may hit some platiforms in the Mexican gulf.

But I think nothing beats the scarcity and price inflexibility of PGM metals, platinum, palladium, rhodium, the narrow play field (only PAL and SWC in North America), and the lack of mentioning of these two stocks in the investment community. Plus isn't it true that South Africa's winter is fast approaching and will come earlier than the first Atlantic hurricane?

So I am sticking with my PGM plays, SWC and PAL, and will only consider putting small stakes in natural gas fund UNG, and a few select natural gas stocks.

P.S. The author is heavily invested in the stocks of PAL and SWC.

Investing In a Resource Constrained World Part Five

In a previous article I touched the topic of Peak Oil and even meantioned the Malthus Theory. The validity of both theories can not be disputed because both are extremely simply and perfectly logical derivatives of mathematics. In the case of Peak Oil, it's been validated by the peaking of individual giant oil fields, and we are just now experiencing the peaking of global oil supply. In the case of Malthus Theory, it has been validated by hundreds of historic events thoughout the human history.

The purpose of my articles is to talk about investments. But it is necessary to divert away a little bit to talk about the paradigm shift of our society first, before I come back to talk about investment ideas.

We are experiencing some gigantic paradigm shift as crisis unfold right in front of our eyes, due to natural resource depletion. It is important for individual investors to understand what are those crisis and how do we cope it, in order to survive and prosper in the looming crisis.

Unlike most Peak Oil advocators who are extremely pessimistic, I am an optimist. I have been pessimistic the first time I learned the Peak Oil concept. But the knowledge about the Malthus Theory actually turned me into an optimist. Humanity have faced many many crises before, each could have wiped out humanity from the surface of the earth, but we survived for millions of years nevertheless. So the looming resource crisis is no different and probably no worse from any of the previous crises humanity has faced.

Let me explain Malthusian in simple terms. A fish in the ocean, for example, can lay a few million eggs at a time. Each egg, given the proper opportunity, can grow into an adult fish and it can lay a few million eggs of its own. If you multiply a million by a million and keep multiplying, pretty soon you reach an astronomical number that total number of fish can easily fill the whole ocean, or fill up the whole galaxy. Of course that could never happen. Most eggs got eaten by other fish as food, before or after it is hatched. A pessimist would think that what if all one million eggs are eaten and not even one survives to grow up? Then the fish could go extinct pretty fast. That does not happen either. It just so happens that out of 1,000,000 eggs, 999,999 will not survive but in average exactly one will survive to lay eggs, no more and no less. The nature has a way of regulating fish population based on available natural resources like food and habitat. The Malthus Catastrophe happens on a daily basis for fish. But I do not see any fish being pessimistic. They have been living happily for millions of years and just keep laying as many eggs as they can. Life goes on. Shouldn't human society, with our collective intelligence, cope with our own Malthus Catastrophe better than fish?

The unfolding energy and natural resource crises, in my opinion, is a population crisis. The global population simply exceed what the earth's natural resources can support. If we have one billion people instead of six billion, then we still have plenty of oil and other natural resources left for every one to consume. There are ways to cope with it, peaceful ways, through conscious population control (like the family planning policy in China), and conscious reduction of consumption. We must abandon our American lifestyle of materialism. China, with a population five times that of the USA, and consumes only one third of the oil, and it manages a much robust economy than the American one. So America should be able to survive with much less oil consumption.

Skyrocketing oil price has already forced many American families to try to adopt and cope with over $4 a gallon gasoline prices. Abandoning driving altogether is impossible for most Americans. But abandoning SUVs and big pickup trucks in favor of smaller, more fuel efficient cars, is what people have been doing. The trend is very clear, sales of SUVs have stalled, but sales of cars are booming. The total auto sale in recent month have dropped some what, only because auto makers have not been able to respond to the demand change fast enough. My opinion is auto sales actually will see a few years of hyper boom, because people will retire SUVs and other inefficient vehicles, well before the useful lifespan of these vehicles. There will be a huge demand on new fuel efficient cars, to replace these SUVs on early retirement.

My advise to people is SELL your SUVs now, while you can still fetch a decent price for it and use the proceedings to buy a new fuel efficient car. You wait longer and more of these oil guzzlers will show up to flood the used car market, and dent the resale value. You should also buy a Prius, the most fuel efficient car you can buy today. I do not own stocks of Toyota Motors (TM) and I do not think they make a terrible amount of money on Prius. But I am getting 66.6 miles per gallon so I can afford a much higher gasoline price than most people do. Toyota could not produce a lot of Prius due to battery shortage. It costs a lot of nickel metal to produce the hybrid batteries. So buy a Prius while you can still lay your hands on one.

I can see there will be continued global nickel shortage due to auto makers rapidly ramp up hybrid vehicle production, but also due to ramped up effort to develop deep sea oil resources. You need gigantic oil platforms, called oil rigs, made of millions of tons of stainless steel, which needs nickel. There is a global shortage of oil rigs, so expect stainless steel and nickel demands ramp up just on this account. Check out the phenomenal raise of RIG and you know there is a severe rig shortage. Buy any producer of nickel while they are now cheap thanks to the recent nickel price correction, which now seems to have bottomed. That of course includes my favorite palladium stock, PAL, because nickel is the most important byproduct of PAL. I am also thinking about TGB, which I once owned in 2006. I still like it's low P/E ratio. Was its recent fall due to nickel? If then, it's good reason to buy on the dip, since I see nickel has bottomed in the current round of correction, especially in light of the big blow up in west Australia.

The solar sector has been hot in recent months but have cooled down some what. Do I consider any solar stocks a good buy here? I have longed and shorted TSL and LDK in the past but I considered them merely trade stocks and I no longer own them. My opinion is Solar PV is NOT the solution of our energy crisis, not silicon based ones, and definitely not the CdTe solar panels that First Solar (FSLR) produces. I suggest that you read an article called Order of Magnitude Morality. The point to make is production of solar PV products are extremely energy intensive. Although it looks like the energy consumed in producing these solar panels will eventually be paid back, due to their long lifespan, it does take up to ten (10) years to payback the energy consumed, fifteen (15) years if you count in everything, including transportation, sales, installation and maintenance. Massive ramp up of solar PV production will consum a great portion of our existing limited energy supply, make the energy shortage that much worse, before the energy contributed by these solar panels can start to make a difference.

Because of energy payback time as long as 15 years with everything counted, we could NEVER ramp up Solar PV fast enough to replace our energy supply. We don't have the time. For example, if we immediately dedicate 5% of today's global energy supply to solar PV manufacturing, which is a stretch because the world can hardly afford even 1% of spare energy supply now. But let's say 5% is available. By the end of the year, we will have produced enough solar panel to provide 5%/15 = 0.33% of the world's energy needs, reduce our reliance on fossil fuel to 99.67%. The next year we can dedicate 5%+0.33% = 5.33% of the energy to solar PV industry. And by the year end we have another 0.355% available. It would take 11 years for solar PV energy supply to reach 5% of the world's needs, and another 11 years to reach 15% of world's energy supply, and another 11 years to reach 35%. 33 years and we are still only at 35% of the world's energy needs.

I do not like any of the solar players in the market today. They all rely on government subsidies in order to prosper. I am a believer of free market and I am against all government intervention in the marketplace. Let the free market speak if it is something beneficial for the society. I am disturbed by the fact that why my tax dollars should help to pay for 60% of the cost of solar installation for my neighbor 100 houses down the street? He may think he got a good deal from the tax break. But he will continue to pay tax to help the No. 99 neighbor to install solar panels, and then No. 98, 97 etc. At the end of day whatever tax break he initially enjoyed, he pays back in future taxes. The tax money doesn't come from no where but from our own pockets.

One exception is ENER, which I meantioned before favorably, and still consider it a favorite long term play due to it's hybrid battery technology and other unique technologies. I consider inventor Standford Ovishinsky the Thomas Eddison of our time. The stock is very volatile so I would recommend buy it on the dips, not on the rallies.

The solar sector is hyped up by the Wall Street. If you have learned a lesson from the 2000 IT bubble, the lesson is don't follow the hypes! That reminds me of another sector wall street hyped up two years ago, the ethanol sector. The most notable stock in this sector is PEIX. I noticed it in early 2006 and I told folks don't buy it at $40. You will lose your money. Turning the food, corn, into the fuel ethanol, is never a very profitable idea. It is never a solution to the energy crisis. Don't listen to the hype, even if Bush himself hyped ethanol. Today, unfortunately PEIX trades at merely $3 a share. Ethanol price has gone up, but corn price has gone up even more, making PEIX barely profitable. All of a sudden every one now denounces the ethanol industry of consuming all the corn in the world, causing global food crisis and famine and all that.

I am a big believer of contrarian thinking. I did not buy JRCC and just watched it rally to $16 in early 2007 when there were all the drum beatings. But I rushed in and bought tons of it at $4 when no one wanted to touch it. Today JRCC is well above $46 and there are lots of drum beatings again. My advice to people is sell JRCC now. I am not saying it is the top. Don't try to catch the top, which no one can. There are much better opportunities else where than to squeeze the last few dollars out of JRCC.

I am tempting to apply some contrarian thinking in PEIX at below $3 now that no one touches it. I do not view it as the savor of the world. My investment goal is not to save the world. The ethanol industry is not the solution to the world's energy crisis. But it has its reason to exist as a legitimate business, satisfying some legitimate needs. When we truly run into oil shortage, and we can turn corn into ethanol to supplement the gasoline supply, I don't see why not! Burning food as fuel for transportation needs is nothing new. The First Emperor of China practiced exactly that 2222 years ago, i.e., burning food as bio fuel for transportation needs in order to bring supplies to his powerful army thousands of miles away. The transportation vehicles he used were driven by machines called horses, they consume food as biofuel in order to obtain the energy to drive the carts. 90% of the food transported is consumed by the humen and horses on the trip, and only 10% reached the destination to supply the army. If the trucks have no diesel fuel, no food can be delivered to your local stores. I would rather prefer to allow part of my food converted to bio fuel to allow the trucks to bring the rest of food to my grocery store. So maybe we should give it some thought if this is the right time to buy some PEIX or other ethanol players. Could PEIX develop alternative feedstock than corn?

I have a big dream that the success of Cold Fusion, now called low temperature nuclear reactions, may become a reality and we will have solved humanity's energy crisis for good, and saved civilization from catastrophic collapse. I know that from the fundamental point of view of quantum mechanics, which says that particles always have certain possibility to tunnel through energy barriers, cold fusion is NOT impossible. Think of all the hundreds of scientists who have resisted tremendous amount of peer pressures and continued the experimental research of cold fusion for 19 years of best of their times. Do you think they are all clueless crackpotists, or they are really up to something? Recent successful public demo by Yoshiaki Arata, a highly respected physicist in Japan, should bring people renewed hope that cold fusion could become a reality and could be the perfect solution for our energy crisis. Of course if that is the case, palladium price has got to go up a lot higher. Palladium is used to trigger cold fusion reactions. I recommend people to watch the video series War Against Cold Fusion to understand it. Instead of advocating for drilling the ANWR and depleting America's last bit of remaining oil as fast as possible, shouldn't America at least spend a few million dollars to check out the reality of cold fusion, when other countries like Russia, China, Japan, India and Isreal already beat us in the cold fusion research? Shame on the short-sighted politicians who only know ANWR!

Metals are my favorites. Base metals and precious metals. My all time favorite metal is tellurium, which I discovered when I studied the prospectus of FSLR. I talked about tellurium here and here. On a side note, I can not believe how stupid the street is, I talked about FSLR's RoHS risk back on Nov. 27, 2007. It's been so long since my article was published and no one paid any attention. And now they suddenly discovered the toxicity of cadmium, and speculate that CdTe solar panels could be banned in Europe. I think it is irresponsible market manipulation. Any competent analyst should have read FSLR's prospectus from day one and know about cadmium and RoHS. On this I want to come to FSLR's defence. They have documented the RoHS risk in the prospectus and in annual filings so they have not hidden anything. Recent news fuss made it sounds like FSLR just made an announcement and that a EU ban on CdTe solar panel is suddenly imminent. I think it remains just as speculative today as last year whether Europe will take actions to ban CdTe solar panel or not. I so far have heard nothing that indicates a move to ban is imminent, so it remains just a speculation of a possible event so far. Was it an attempt of the street to lure in some unsuspective fresh shorts, and then run another round of short squeeze? I remain skeptical because I know how this market could be rigged in either directions, with analysts often selectively distribute information they see fit.

The real risk of FSLR remains how it is going to resolve it's tellurium supply. I talked about it quite a lot and I tried to dig out information. But the FSLR management do insist that they have adequate tellurium supply. Since they have never revealed the actual data on their tellurium supply, we the outsiders can only speculate and discuss opinions, and the fact remains something only FSLR knows, until such time they are willing to come to the public and discuss it. Maybe they need more time for insiders to sell? One thing that I think I am sure is one day my stash of tellurium hoard might be worth its value in gold. I wish there is a tellurium mining stock to buy.

But really palladium and platinum are the next best thing. They are way much better than gold and silver. I could never bring myself to like gold. I did once buy gold stocks like NG and NXG. Now NG is less than half where I last sold it at $16+. I now frankly think gold is the worst of commodity investment, and gold mining could be worse. Of course as fiat currency depreciate, gold's nominal value in fiat money looks higher. But you still have nothing to gain. Go to Zimbabwe. You can exchange a gold coin for one trillion Zimbabwe Dollars. You feel good being a trillionaire but you are not getting rich.

Gold is money since ancient time and is still money today. I have a problem with that fact! Money, as an exchange media, must be something that people are willing to take in and equally willing to let go. If people want to hoard it but do not want to let it go, or people are rather happy to give it out and hate to take it in, then it can not be exchanged freely as a trade media. So by the virtue of gold being the money, it is something perceived to have near constant value in real term, people have a neutral sentiment in owning it or dishoarding it. and that is exactly the reality. There are more than 160,000 tons of gold being hoarded by different people and organizations. Any trade of gold, is largely between some hoarders of gold and some other hoarders of gold. The mine supply and jewelry industry demand, in this case, is relatively small in comparison, and does not have a material impact on gold's price. There could never any shortage nor any surplus of gold. I would rather buy silver than gold on the Friedman Theory. On silver have a look at SIL and CDE. Could be good bottom fishing target. While PAAS is now more expensive than silver itself. If you want leveraged gain on silver then buy some SLV. Similarly use USO and UNG to play on the oil and natural gas commodity prices.

I would like to look at things from the point of view of basic supply and demand relationship. If I want to invest in a commodity, I need to know that it's price must go up. I need to know that it is in demand and that there is a supply shortage. I also need to know how elastic or inelastic that the price change may affect the supply and demand, and bring back the balance. Something that is price elastic, that higher price could easily boost supply or cause people to reduce usage or seek alternatives, will have less room for price gain. On the other hand, if it is something price inelastic, that higher price will neither boost supply, nor persuade industry users to stop using it, or there is simply no alternative or replacement, then it is a commodity that has a lot more room for price to appreciate.

Palladium and platinum fits such description of commodity that is in short supply, that is in ever increasing demand that is rigid and non-negotiable. The supply is in shortage because the ongoing electricity crisis in South Africa, which greatly impacts production in this main PGM metal supplier of the world. The electricity crisis sees no solution until at least 2012, according to ESKOM and other reports from South Africa. The PGM production disruption is well documented for any one willing to dig out first hand information, instead of relying on second hand guesses. On page 9, table 3, you see the March, 2008 PGM production is down 28% from last March. SA supplies 85% of the world's platinum and 35% of palladium so that's a lot of global supply reduction.

Curiously, the trade of platinum and palladium so far has not followed the way the fundamentals of supply shortage dictates. Instead they follow gold and silver. Gold up and PGM up. Gold down and PGM down. What does PGM's own industry supply/demand has anything to do with gold or inflation hedge? I guess the metal traders are just slow in digging out useful information. If it takes the street almost two years to dig out something well documented in FSLR's IPO prospectus, it doesn't surprise me at all that the reality of South Africa's electricity crisis hasn't even sink in yet even in the minds of some of the most well known metals analysts, let alone the average investors. But soon the PGM fundamentals have to kick in. Industry users must buy for their consumption. The price movement will wake up investors.

I know one hedge fund manager, a physics graduate and very successful in his career, manages billion dollars of assets and claims to be a good friend of a briliant trader, Brian Hunter, whose one single mistake killed Amaranth Hedge Fund. I tried to talk to him about palladium and he told me right away he knew palladium, and there were lots of palladium mines in Canada, and he knew many funds who bought the physical metal. He totally believed he knew it but he really didn't. If a bright guy with such a good background could be so clueless, the average wall street investors must be in total darkness, and of course the computers they use to trade is even more clueless about fundamentals of the markets.

So be patient, spend your time do your own DD. Dig out first hand information and do your own analysis. If you have done so you have beaten the street already. If you further have the determination of sticking to fundamentals and not be swayed by the mindless computer trading of the big funds, then you will win big time at the end of the day. I am sticking to my investment in PAL and SWC since I have done my homework, and checked them many times and could not find any thing wrong with my analysis. And I will patiently wait for the market to wake up to the reality I have discovered long ago. Meanwhile I am taking pride in my legacy of the first individual tellurium investor in the whole world. I made the correct call at the lows of JRCC and ENER, so I know I have the sharp vision. I am not envy about the recent astonishing rally of JRCC and ENER, because I know in time, PAL and SWC will do much better.

P.S. The author is heavily invested in the stocks of PAL and SWC. I have hoarded physical to speculate on tellurium price appreciation.