The precious metals hedge I suggested two weeks ago (#msg-1230445, sell short PT at $686 and buy long either Rhodium or half Rhodium half Palladium) is already starting to work. This hedge is a very long term play, so it is not time to take profits for a mere 5% differential.
Zeez, in looking at your suggested hedge, I ended up doing a lot of very interesting research on the PGM group. I find that over 60% of the dollar value of PGM metals comes from South Africa. I also find that this ore is produced from the Bushveld Complex, which includes the Merensky and UG2 reefs, plus the Platreef. PGM ore from North American contains much Palladium and little Rhodium, whereas South African ore is much higher in both Platinum and Rhodium, and lower in Palladium.
Within the various South African ores, UG2 ore is much higher in Rhodium. By the end of the decade UG2 ore will consitute 60% of the ore processed, up from 45% today, which will significantly increase the amount of Rhodium produced. In 2002 some 79% of the Rhodium is already produced in South Africa, while Russian sales of Rhodium have dropped by 2/3 over the prior two years. Since South African production will continue to climb as a higher percentage of UG2 ore is used, Rhodium supplies would seem to have nowhere to go but up.
Given a situation where Rhodium supplies are likely to increase at a faster rate than any of the other members of the PGM group, I am curious why you favor a long position in Rhodium? Are you expecting Russian sales to drop further from an already low level? Or are you expecting a rapid growth in demand? If you are expecting a growth in demand, from which use? Autocatalyst? Nitric Acid Production? Glassmaking equipment? Temperature and Gas Sensors? For 2001 and 2002, supply exceeded demand slightly, and with supplies continuing to increase, a shortage would seem to require a large jump in demand, but most uses have been pretty static over the past two years. http://www.platinum.matthey.com/uploaded_files/market_data/Rh%2093%2002.pdf
Note that, by contrast, Platinum makes up a smaller percentage of UG2 ore than it does in the other South African ores. Thus, given the expected shift to UG2 ore, it would seem more logical to me to take the reverse hedge position, were I inclined to take such a position at all. Anyway, I'm curious for your underlying reasons.
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