Special Report: Russia's Heavy Metal

How Russian sanctions have two metals set for record gains

Play the trend now before it's too late

From Andrey Tretelnikov in Bloomberg on 6 May 2015:

A rebound in nickel prices and expectations of further gains are the main drivers pushing Norilsk Nickel higher

This is the optimistic state of affairs for investors after past few year's chaotic geopolitical climate…

Nickel prices, along with the prices of several other heavy metals, have been — and will continue to be — altered as a result of Russia's incursion into Ukraine.

Russia 1

It all started back in February 2014 after violent protests and the ouster of former Ukranian President Viktor Yanukovych.

Followed by the occupation and annexation of Crimea which led to months of Russian denials of involvement in the civil war in eastern Ukraine until, finally...

A NATO officer anonymously told journalists that there were over 1,000 Russian soldiers operating in Ukraine, assisting rebels and prolonging a shadow war within the former Soviet territory.

Russia propped up separatists in the East as they tried to create a land-bridge between the annexed Crimea region and the Russian border.

Fighting continued until late February 2015 when a ceasefire finally calmed the waters.

Smaller skirmishes continue to this day as Russian troops continue to patrol the demarcation line along the border of Crimea, with each side claiming the other is to blame.

Obviously this is a quick glossing over of complex events, but I don't want to waste too much of your time focusing on minute details.

The important part of this involves what you can do as these events change the global market.

With sanctions from the U.S. and European Union holding strong, and more from the U.S. on the way if President Trump has anything to say about it, the situation for metals is only going to become more perilous as time goes on.

But there are two metals that, if you play them right, could make you rich in short order from the ongoing Russian sanctions...

Russian Heavy Metal

Those two metals are Palladium and Nickel, and Russia has them in abundance. More than anyone else in the world, in fact.

In the Siberian province of Krasnoyarsk Krai, Russia has a wealth of metals that includes not just palladium and nickel, but zinc and gold as well...

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Russia mines nearly 40% of the world's palladium and more than 11% of the world's nickel.

But if these new sanctions are to have any effect on Russia's economy, as the U.S. and E.U. want, they need to target crucial sectors such as energy and mining.

The only problem with this is that targeting those sectors will also have a negative impact on the Western economies that rely on imports of oil, gas, copper, and, of course, nickel and palladium.

But for investors who know about how sanctions will affect their investments, palladium and nickel stocks are set up for the biggest jump in price since 2000, a time when Russia was doing more market meddling...

Palladium in the Palm of Your Hand

Palladium is number 46 on the periodic table and has many practical applications in today's economy...

As of 2016, Russia exported as much as 22.6% of the world's palladium supply. Another 16.3% comes from South Africa.

This means that a mere two countries are responsible for nearly 40% of all maretable palladium in the world.

And if you're new to palladium, let me tell you that it has become a very important resource over the last four decades.

It started in 1975 when new regulations forced car manufacturers to design all vehicles with a catalytic converter to cut down on the emissions of deadly chemicals.

You see, catalytic converters, and specifically, the process of catalysis, cannot work without palladium. That's why one is present under every single non-electric hood in the U.S.

And now some states are mulling legislation that forces ALL engines powered by fossil fuels to use catalytic converters... that means that every generator, forklift, golf cart, and all other fossil fuel powered systems will need palladium.

I probably don't need to tell you that this is going to be a huge boon for the palladium investor...

For example, back in 2000 palladium hit record high prices.

An ounce went for a whopping $1,100, but Ford and General Motors feared a shortage from Russian stockpiles.

They bought palladium and Russia decided to release some of its reserve stores, depressing prices and causing Ford to take almost $1 billion in losses over the next three years.

But palladium isn’t just found in cars…

The metal is also used in fuel cells — a quietly booming industry — and in consumer electronics like smartphones.

So with the smartphone business projected to be compound 7.9% every year from now to 2024, palladium from Russia has a significant part to play.

Palladium Price Chart 2017In fact, I won’t be surprised to see palladium prices hit — or even break — the record high seen in 2000 even though it only costs about $887 per ounce today.

Nickel Back in Force

Like palladium, nickel is another element that has many practical uses in the modern economy.

It’s used in everything from stainless steel to electronics, magnets, batteries, and even guitar strings.

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And as I mentioned before, Russia mines more than 11% of the world’s nickel supply. Since a ton costs around $10,101, we are in the midst of a historic buying opportunity.

And with Russia pumping out about 256,000 tonnes of nickel in 2016, any sanctions against Russian metal will raise the burden on all other nickel producers.

Which means that the demand will drive prices higher, allowing non-Russian nickel producers to bank serious profits.

Nickel Price Chart 2017

Although there are significant stores in Montana, South Africa, Indonesia, and Australia, nothing can replace that huge Russian output. Sanctions on Indonesian exports have affected prices for other sellers in the past, and even though it could harm businesses, Western governments are searching for the sanction to put a damper on Putin’s incursion in Ukraine.

Optimistic Norilsk Nickel, the world’s biggest nickel producing company, has already taken advantage of sanctions against other countries by offering their services to the biggest nickel consumer: China. China's increased steel industry called for this kind of supplier, and Russia answered enthusiastically.

So any more drains on the global supply will be sure to drive prices to record highs.

But What About Gas?

Although many pundits in the media see oil and gas in Russia as the easy target for effective sanctions, the E.U. is not willing to go that far yet.

Consider this…

In 2016, Russia’s total export revenues reached $285.5 billion. $134.7 billion of that, or a total of 47.2% of the country’s total exports, were fuels including oil and natural gas.

The vast majority of these fuels travel via pipelines to customers all across Europe.

This means that, although probably effective, any sanctions on Russian gas producers would create an upward spiral for energy prices in Europe, and a serious backlash from consumers there.

Until U.S. LNG operations catch up to global demand, Europe won’t be cutting itself off from Russia’s fuel supplies just yet.

Buy Palladium and Nickel for a Banner Year

So while the talking heads in the mainstream financial press blather about Putin and sanctions against Russia, the real play is to go to the next big money maker… metal.

Although prices will inevitably rise, Western economies could more easily live with strict sanctions on imports of palladium and nickel.

And even though operating costs for most auto manufacturers would go up because of the lack of palladium on the market, the all-important price of gasoline would remain low since the U.S. now has shale oil and gas in abundance, and Europe could still rely on petroleum and methane from Russian wells.

Of course we still don’t know what other sanctions are set to come, or if the ceasefire will hold for much longer...

But if these challenges are going to have a significant impact, they have to take a bite out of the massive, metal producing Krasnoyarsk Krai.

While you wait to see what Putin plans to do next, and what the U.S. and E.U. plan to do in response, you should remember that now is the time to play the nickel and palladium markets.

Invest accordingly,

Keith Kohl

Energy and Capitol


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