The price of
rhodium staged an impressive
rally in recent weeks. At the bottom of recent commodities sell off at the end of October, 08, rhodium dropped to
$750 per ounce, from
the high of
$10,000 just
a few months ago. Since the October bottom, rhodium price has raised to
$1650 per ounce, a surge of up
120%, while gold is up only
25%, silver up
36%, platinum is up
58% and palladium is up
38%. Clearly rhodium has been the best performing precious metal.
But if you ask the metals analysts, they will tell a
bearish story. Rhodium has no investment demand, as the metal is extremely hard to buy and sell, and there is no futures trading on rhodium. Rhodium's demand is purely industrial, with auto sector accounts for over
90% of the total. The auto sales are weak, so the rhodium demand should be weak and the price must drop.
Analysts get one thing wrong. For an easily hoarded metal like
rhodium, the
true industry demand does
NOT equal to the immediate consumption need. The
true demand is
how much industry users are willing to buy, at current price,
NOT how much their current needs are. Analysts have confused
purchase demand, the force that drives price, with
consumption demand, which doesn't affect price.
Like wise, the true supply of the metal is NOT how much the mining companies have produced, but rather, how much they are
willing to sell, at current price. I suspect some South African PGM mines may hold back some of their rhodium to wait for a better price in the future.
As the metal is dirt cheap now, industry users will want to
buy more, much more than they would need for the next 3 months, 6 months or even 10 years. The cost is minimal to store rhodium for long term. It makes perfect economic sense to
buy extra at $1600/oz, so you can buy less when the price runs up to $10,000 again. It's common sense people should buy more when things are cheap, and buy less when they are expensive.
Such rationales, as well as the fact that PGM prices rallied strongly off their recent lows, are proofs that the bearish calls on the PGM metals, such as
bearish calls made by the Fortis Group, do not reflect the reality and are completely unfounded. Investors would do better looking at the complete picture and do not let the analysts do the thinking for you.
The same rationale can be applied to other easily hoarded commodities, like industrial base metals:
copper,
zinc,
nickel,
cobalt,
aluminum. That might be the reason why most commodities bottomed at roughly the same time, and then all rallied up since. People in the industry understand they can not expect prices to stay low forever. If prices are lower than marginal production cost, producers will have to cut back and prices must go up to reflect the real cost. So it is prudent for industry users to
buy more,
hoard more for their future needs, if they can,
while the prices are low.
One exception is
coal, as coal is cheap and bulky. It is costly to store large quantity of coal if it is not used soon. That's why
coal price hasn't recovered yet like other commodities do. I would caution about buying coal stocks now, like
BTU,
ACI,
CNX,
MEE and
JRCC.
The Chinese government understands the economic principles of commodities pricing. There are reports that China has been aggressively spending out its US dollar reserves to buy and stockpile all sorts of industrial materials. Some
speculate that China's purchases could be the reason behind recent surge of copper price. Copper is unique as its price never significantly fall below production cost, and few producers actually cut copper production as they are still making profits. For example, Southern Copper Corp. (
PCU) could still
break even in Q4, 08. Read "
copper standard" on recent China speculations in copper.
If China and other countries are stockpiling industry raw materials, then it's a good bet that dry bulk shipping stocks will continue to be bullish, as you need ships to transport bulk materials around the world. All shipping stocks are still dirt cheap to buy, like
EXM,
EGLE,
DRYS,
TBSI,
GNK,
NM,
DSX,
OCNF,
SBLK. My favorite shippers are
EXM,
EGLE,
TBSI, due to their high ratio of shipping capacity versus current market capital, and
DRYS due to its asset of
ultra deep water drilling rigs. Watch Transocean (
RIG) to get an idea on deep water oil drilling.
The
biggest metal story is about
my favorite metal palladium. On sunday April 19,
CBS 60 Minutes carried
a special TV program about the science that will shape our energy future:
Cold Fusion! You can
watch it or
read it. Read
my previous comment on the
breaking news.
The
60 Minutes program, titled "
Cold Fusion is Hot Again", is a powerful
endorsement on the science of
LENR,
Low Energy Nuclear Reactions, previously known as
Cold Fusion, an important physics discovery previously discredited, but picked up research interests again as new evidences have convinced many former cold fusion skeptics.
It's an impressive
CBS report to
watch or
read.
CBS contacted
American Physical Society, who sent
Dr. Robert Duncan to help to make a determination. Dr. Duncan was a cold fusion skeptic. They flew him to the Israel lab to spend several days there. Let him scrutinize every detail and ask tough questions. At the end, Dr. Duncan was totally impressed and convinced by the compelling cold fusion experimental evidences. The fact that
CBS brought alone a skeptical physicist to visit the cold fusion researchers and
convinced him that the experiments were legitimate is pretty
impressive. On the other side, Dr. Richard Garwin's claim in the TV program that the researchers measured the input energy wrong for
20 years (?!), was
decidedly unimpressive. Watch
the program and judge by yourself.
Cold fusion relies on the precious metal
palladium. Successful commercialization of cold fusion will mean humanity will have a cheap and virtually inexhaustible new energy source, and hence we can put the threat of
Peak Oil Crisis behind us. If you are concerned about our energy future, if you care about our children's future, you need to contact politicians and urge them for support of cold fusion research. This science was
suppressed for 20 years. We can not allow it to be suppressed any more, for our children, as
Peak Oil has
already become the reality.
Cold fusion will take some time to be developed into a commercial reality. But when it does,
palladium price could go up to
unimaginably high level. Such a great investment is worth buying and holding patiently for long term. So
now is time to buy any physical
palladium you can lay your hands on. It is also a good time to buy stocks of
Stillwater Mining (
SWC) and
North American Palladium (
PAL). They are the
only PGM producers in North America. As I explained, when things are priced ridiculously low, it is a good time to buy.
Full disclosure: The author is heavily invested in palladium mining stocks
SWC and
PAL and own
AAUK. I also hold large stakes in shipping stocks
EXM,
EGLE,
DRYS,
TBSI,
GNK, and ETF shares of
USO,
UNG and
SLV.