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A Road Map To Technology Metals – Part 1: Precious Metals

Thursday August 29, 2013 09:53

Editor's Note: The demand for new gadgets like smartphones, tablet computers and even electric cars is generating a lot of interest in the tech metals industry. This relatively new group of metals and minerals is a combination of precious metals and rare earth elements. Kitco News sees the need for reliable information about this growing commodities sector. For this reason Kitco has partnered up with Bodo Albrecht an independent analyst with 20 years of experience in the precious metals industry. Stay tuned for this weekly new feature on kitco.com! Tech Metals Insider - one more reason to come to world's premier gold site.

There are a lot of questions about technology metals – a relatively new sector in commodities.

  • Why invest in Technology Metals?
  • Which ones are easy to invest in?
  • What is the best investment vehicle?
  • What is the potential?
  • What are the critical factors influencing the markets?

Answering these questions is the objective of this blog. This is the first of three articles that are intended to help shed some light on which tech metals are used where. At the end of each piece you will find a chart pointing out the uses of technology metals in particular applications: automotive, electronics and housing.

Technology metals as we define them here are:

  • Precious Metals
  • Rare Earths
  • Specialty Metals

Most metals in these three groups are used in technical applications, hence the name of the sector. However, only some of them are of interest from a technical perspective. Today’s chapter is on precious metals.

The eight precious metals are: gold, silver, platinum, palladium, rhodium, ruthenium, iridium and osmium.

Gold and silver are probably the most well known; both metals are used in a multitude of industrial applications but their character is also that of currency; they are investment vehicles. Silver, more so than gold, has seen significant advancements triggered by its industrial uses, mainly photography. Despite the fact that digital technology is replacing conventional photography, silver is still used in significant amounts by that industry, albeit decreasing from year to year.

However, demand is growing in new areas, mainly photovoltaic (solar cells) but also medicine and hygiene, an area for which good statistics are still hard to find. Similarly, despite the decline of silver oxide batteries (Ag2O) there is some evidence of silver monoxide (AgO) being used in novel batteries for telephones and laptop computers. Analysts believe that these new applications combined will not exceed one fifth to one quarter of what photographic silver used to be.

I am more optimistic, in particular since all silver used in hygiene (clothing additives, colloidal silver in after shaves and bandages) will be irrecoverable. Fact is that industrial uses of silver by far outweigh the demand for coins and bars: industrial uses are about 40% of annual volume with another 40-50% being silverware and silver jewelry. Which might just make silver a “sleeper” among the precious metals.

Gold is used in electronic components because of its high conductivity and resistance to corrosion. While the use of gold has decreased in dental applications, some new markets (chemical catalysts, pharmaceutical drugs) have emerged, but they are too small in volume to have any impact, or much potential. Industrial use of gold represents about 10% of the market today. The price and market for gold will continue to be influenced mainly by investment demand and jewelry.

Bottom line is, then, that neither gold nor silver show the potential just yet to influence metal prices for reasons of technical use.

Platinum Group Metals (PGM): platinum, palladium and rhodium. Not unknown to investors either although physical rhodium only just recently entered the market. Demand is carried mostly by the automotive industry using about 50-60% of the world’s production which is why I will talk about cars a lot in my blogs.

While the automotive catalyst market has been on the decline, cars are now carriers of increasing amounts of electronic devices and batteries. The per-unit amount of PGMs used in catalysts and on-board electronic devices are very small, a few grams only per vehicle; however, the total volume of car sales is large, and on the rise as the global economy continues to improve. Increasing car sales are partially offsetting the reduced per-unit use of PGMs today. Overall volumes of catalysts are likely to gradually decline due to smaller engines, market saturation and the proliferation of electric and hydrogen powered vehicles.

This is also a big reason is why China is so incredibly important to tomorrow’s metal markets: China has not only become the largest growth area for motor vehicles in recent years, it is also recognizing the need to reduce pollution by promoting electric vehicles. Vehicles that will use increased volumes of rare earth metals of which China owns and has the most control over.

As to platinum and palladium: they are likely to make a reappearance in fuel cell membranes where they are currently needed in higher per-unit quantities than on auto catalysts. Fuel cells, either used as standalone engines or, as some industry insiders predict, to replace internal combustion engines (ICEs) in hybrid vehicles starting 2017.

Iridium, Ruthenium and Osmium: the former two are actually potential underdogs: crucial for specific niche applications, not as readily available and hard to work with. If any of the “peripheral” applications where they are used catches on the effect on availability will be high. Osmium, I’m afraid, is probably just the “dog” in the group: toxic and very hard to work with, it is used in niche applications with little foreseeable potential.

Part 2 will be on Rare Earth metals, to be published in two weeks.

By Bodo Albrecht
tminsider@eniqma.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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