Dwindling supply and increasing demand for platinum and palladium in catalytic converters and other uses make them keys to wealth preservation and growth. Supporting this thesis is severe pollution from China's industrial expansion. Its quest for PGMs (platinum group metals) and other commodities also reveals geopolitical-financial power shifts that impact currencies, markets and our economic prospects. Pollution is near the center of these macro issues and commodity plays.
In January and February China's air pollution became so extreme it briefly made news. "China's Poison Air is becoming its Leading Export" said Bloomberg. But China's role as the world's leading polluter pre-dates this year. By 2006 it had become the world leader in CO2 emissions so the carbon cap-and-trade derivative scheme missed the main culprit: China now burns 3.8 B tons /year of coal (45% of world use). Often Chinese air pollution accounts for 75% of the particulate matter on America's West coast and a substantial amount of foul air worldwide with levels termed "post-apocalyptic." Early this year, gritty air in northeast China was 45 times above WHO's acceptable level and 3-4 times above levels our EPA rates "hazardous to human health." The photos tell the stories as residents of Beijing and other Chinese cities wear masks of all varieties while hurrying through black mid-day smog. Philips Electronics (PHG), Honeywell (HON) and Remington quickly sell out shipments of masks and air filtration machines (grabbed first by Party leaders) and are backlogged. 3M (MMM) cannot keep up with China's demand for its simple surgical and construction masks. These companies are on the leading edge of a major trend selling pollution control tech and materials to China. Covanta Holding (CVA) does waste-to-energy conversion and has interests in China. A steady performer that pays quarterly and yields 3.3% it is a good addition to dividend holdings with significant growth potential as BRICS nations continue to build. For example, by 2017 India likely will burn as much coal as China.
China also generates 35% of mercury contamination of the oceans but Western and international environmental organizations say little on this disaster: making China an economic counterforce to America trumps life and health. It is like the IFC-MIGA Compliance officer citing Rio Tinto (RIO) and Turquoise Hill (TRQ) for inadequate efforts to improve, protect and enrich Mongolia while ignoring the horror China has made with its mining in Inner Mongolia immediately to the South. But China's problems with environmental degradation have become so blatant and even bizarre that some attention is being paid and that is bullish for the companies mentioned in this piece.
Recent pollution disasters that have embarrassed China's leaders into acknowledging the issue include 16,000 dead pigs floating down the Huangpu river which provides drinking water to Shanghai and thousands of dead ducks in a river in the southwestern province of Sichuan. Global compliance ombudsmen must be looking the other way while Chinese complain and their leaders speak of remediation. Even as they speak they assert that poverty is worse than dirty air. But along with smog, change is in the air.
Regarding industrial emissions, companies like Clean Coal Tech (OTC:CCTC) that could mitigate sulfuric oxide pollution from China's huge industry in bleaching blue jeans are positioned for growth. Bad pollution and the ongoing expansion of Chinese automotive fleets make a bullish scenario for platinum and palladium for catalytic converters. Like silver, these two PGMs (the other is rhodium) have myriad tech-industrial uses in cell phones and computers, fiber optics, fiber glass, paints, fuel cells, unleaded gas and dentistry. Medical use as anti-carcinogens also is being pursued. So regardless of other events in mining or the degree of Chinese investment in pollution control this multi-sector utility should lift PGMs in the mid and long term.
Thus, your holdings should include companies like Stillwater Mining (SWC) that is America's only PGM producer. From its 1880s start up as a nickel and copper miner in south-central Montana, in the 1980s SWC began focusing on PGMs in concert with increasing technological applications and industrial demand. It runs two mines at the J.M. Reef considered the richest PGM vein in the world. It also has properties in Ontario and a gold, silver and porphyry site in Argentina. For thirty years, Chevron (CVX), Anaconda (ANX) and Johns Manville have run Stillwater Mining with Chevron Resources the managing partner. Also consider for your PGMs allocation Sprott Physical Platinum (SPPP), Pall Physical Palladium (PALL) and promising junior Platinum Group Metals (PLG) that has a deep mine in a rich venue in South Africa. Geologist Byron King reports that they have good relations with the government and are coordinating with Impala Platinum Holdings (IMPUY) whose shares were hit by local labor violence in summer 2012. King comments that "we are on the edge of a perfect storm in PGMs." Impala's share price remains depressed and given its properties a small position is reasonable at today's valuation. Last fall it recovered from the turmoil and out-performed the sector till 2013's general sell-off which finds it 33% off its December level and far below its secular high near $33. Also note that historically platinum has sold at a premium to gold but for most of the past year has lagged it. Moreover, Russia's supply of palladium is dwindling as the "nukes to energy" program expires. Given their many and expanding industrial uses, platinum - palladium like Ag are supported by a strong thesis and fundamentals of global markets. Canada, a friendly jurisdiction is the world's third largest palladium producer so North American Palladium (PAL) also should be followed.
Because China is a growing customer for PGMs (as well as precious metals sought by its Central Banka and citizens) one should track its expanding acquisitions of commodities and global power. Western governments, banks and the IMF juggle debt while China acquires African assets like rare earth in Tanzania. Chinese engineers repeatedly steal computers filled with aeronautic and missile technology from NASA in FL, VA, CA and TX. It has become routine and lifts the rug covering geopolitical-commercial arrangements. It's probably wise to invest in a China ETF featuring major companies (FXI) or small caps (HAO) that piggyback on our technology.
China's new head Xi Jinping traveled to Russia and then to Africa to lock in China's growing dominance of that resource-rich market. As citizens as well as investors, you might want to research the millennia-old doctrine of imperial Sino-centrism and the "heavenly throne" which in Western nations today would be termed racism. Evidence suggests that despite its massive pollution, indifference to life and skewed centralized development the dogma of the heavenly throne which deems distant nations "barbarians" remains part of Chinese culture and its push to the top.
China is investing heavily in African infrastructure like ports and the railways that link them to its holdings in gold and platinum mines. Perhaps it's good that Barrick Gold (ABX) did not sell China its African subsidiary for Chinese hegemony on that continent is growing from Tanzania on the Indian Ocean to Brazzaville on the Atlantic. Chinese imports from Africa soared 20-fold in a decade to reach $113 billion last year and by 2009 China became Africa's largest trading partner. Beijing hosted a summit of 48 African leaders in 2006 while Western leaders manipulate jihad in the north and watch global re-alignment proceed.
A third ($60 B) of China's African commerce is with South Africa. Premier Xi is meeting there with leaders of Brazil, India, Russia and South Africa at the BRICS summit of emerging economies. It behooves Western governments and investors to participate in this growth. This is the macro picture in which PGMs and PMs have a growing role. The confidence-shattering events in Cyprus strengthen the case for a new world reserve system that links the Dollar with gold and BRICS' currencies that OMFIF includes in a new basket to replace the fiat-stricken Dollar Index. This will lift all precious metals.
In regard to China's growing economic-geopolitical power and its link to the bullish case for PGMs note that on March 19 Brazil floated $1B in bonds in Yuan (RMB) and $2.2 B was bid. These short-intermediate term instruments yield 4.2%. Compare that with 4-year US investment grade bonds yielding 2.4%. The West's financial - diplomatic elites have enabled China's rise, forging a tri-polar world system like that described by Orwell in 1984. Investors need to know and participate in macro developments and PGMs are a good way to do so.
In 1920 Spengler recognized what we now call the BRICS as the foci of Great Power dialectic contentions to come: "in these wars of the era of world peace whole continents will be staked, India, China, South Africa, Russia, Islam" the last being England's main wild card for geopolitical and cultural change including the rise of China.
The takeaway is to add PGM holdings to your Precious Metals, materials - commodity allocation. Be mindful that while Europe, England and Russia, and by extension America's markets are enmeshed in and affected by the implications of Cyprian debt-restructuring, China, the world's main polluter is cornering global resource assets and cementing the Renminbi's place in the emerging world reserve system. PGMs are good plays as a global sell-down becomes more likely by the week.