Rare strategic metals: a portfolio diversifier
Interview with Knut Andersen – Swiss Metal Assets (SMA) is the only company providing a turnkey solution in the acquisition and storage of rare strategic and precious metals in the Americas. The firm is based in Panama with representatives in the USA, UK and Italy. Its trading partners are Schweizerische Metallhandel AG and Haines & Maassen, both based in Germany.
SMA’s objectives are quite simple: to stockpile rare strategic metals on behalf of clients (and itself), in Switzerland and Panama, with a view to then offering them back to the market in three to five years’ time at elevated prices.
“Demand in the market is outstripping supply,” says Knut Andersen (pictured), Sales Director: “We are basically taking about 10 per cent off the total market in Europe each year; right now we have over a year’s supply of Hafnium.”
Most investors, while familiar with rare earth metals, probably have never heard of rare strategic metals, despite the fact that they are used in 80 per cent of household products and electronic gadgets; albeit in small proportions.
SMA offers its clients the choice of four metal ‘baskets’. They are: Key Industries, Energy, Construction and Engineering, and Defence. Indium, Gallium, Hafnium, Tellurium, Tantalum and Bismuth are six of the 12 strategic metals offered by SMA, and make up the Key Industries basket.
“The A, B & C baskets are stored in Switzerland because the industries who buy them are based in Europe. The defence basket is stored in Panama because the military industries who buy them are mainly based in the Americas,” confirms Andersen.
Tellingly, China controls 97 per cent of the market. As mentioned, rare strategic metals are used in electronic gadgets – iPhones etc – which the burgeoning middle classes in Brazil, India and China are increasingly looking to purchase. “This will put a lot of additional strain on the supply side in addition to the increasing demand from the developed west and east and prices over the next five years could skyrocket,” says Andersen.
Indeed, for the past three consecutive years the 12 metals offered have appreciated, on average, by 20 per cent per annum. This is helped by the price inelasticity of strategic metals. Even though the price of consumer electronics has fallen in recent years, strategic metals have moved in the opposite direction.
The entry level position is for the Energy basket starting at about USD6500. The Construction and Engineering basket is about USD10,500; the Key Industrials basket is about USD18,000, and the Defence basket is about USD23,500.
The clear advantage of holding these metals relates to wealth preservation and the preservation of purchasing power from the ravages of currency devaluation and inflation.
“As the client physically owns the metals they enjoy the benefits of 100 per cent allocation and segregation. They also benefit from being currency risk free during the period the metals are owned, as you can sell in whatever currency you want.
“Owning strategic metals clearly brings upside benefits and makes for an effective portfolio diversifier. Andersen recommends that investors use a three- to five-year investment horizon. “If you’re looking at 12 months, stick to gold and silver.”
In today’s volatile markets, Andersen notes, investor interest is building, both as a result of increasing prices in the metals “but also because clients are worried about market volatility. They want something safe, tangible and liquid with low volatility. This is really for a part of your portfolio that you want to put away and forget about for a few years.
“I would compare buying these metals now with buying gold at USD300-400 an ounce,” says Andersen, emphasising the upside potential now available to the owners of these strategic metals.
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