another opinion from kitco:
Date: Thu Feb 24 2000 18:45
DJ (Palladium/platinum Thoughts) ID#6779:
Copyright ¸ 1999 DJ/Kitco Inc. All rights reserved
This is the chart I used for channels. I don't attempt to define channels anymore, with wild things happening in
the metals. However, I thought some of you might be interested in a couple of observations.
If I extend the rapidly rising trend line that palladium followed faithfully for several years, you will note that at
$700, palladium is back to this line. ( By the way, the slope of this line represents an annual growth in the price
of palladium of around 67%! ) . This gives some credence to the theory that this is not a spike, as most people
assume, but a correction back to an established trend.
If this is true, there are a couple of implications. First, anyone shorting palladium at this level may well be fried.
Second, Stillwater, even after the steep jump, is still well underpriced. If one calculates Stillwater's earnings
with the price of palladium rising by 67% per annum, on top of the planned growth in production, the profits
get truly obscene. I won't even bother showing my detailed calculations, but the earnings per share in 2002
would be roughly $40. ( This ignores the effects of hedging, which I haven't factored in. )
Finally, there is NO WAY that platinum would be left behind. As quickly as companies could retool, they
would switch to platinum, which is more efficient anyhow. However, platinum is even more rare than palladium,
and its industrial uses are growing, so it shouldn't put too much of a damper on the price growth of palladium.
Since platinum is lagging way behind palladium in price, it seems that the industry is convinced that we are
seeing only a spike in the price of palladium, and it will soon drop back to the $500 level or lower. Note the
line that shows the rising support line for platinum. Hmmmm ... It seems it is rising at 67% per annum. Curious.
If these prices seems unrealistic to you, remember that most applications for platinum and palladium are not
price sensitive. For instance, very little palladium is used in an individual catalytic converter, so the price of
palladium has negligible effect on the price of a car. |
