Image: Striking workers gather outside the Marikana platinum mine in Rustenburg; South Africa, earlier this month. © Getty Images

Image: Striking workers gather outside the Marikana platinum mine in Rustenburg, South Africa, earlier this month.

When the global economy is booming, all that investors in commodity stocks seem to pay attention to is news about rising demand. China increases its imports of iron ore, and shares of Vale (VALE), BHP Billiton (BHP) and Rio Tinto (RIO) climb. Housing sales rise in the United States, and the shares of copper miners such as Freeport-McMoRan Copper & Gold (FCX) and timber producers such as Weyerhaeuser (WY) go up with them.

Of course, there are doubts about growth even during a boom, but investors don't do much listening to the pessimists.

When global economic growth falters, as it has now, stories about demand have a harder time winning investor mind-share. When it comes to moving stocks, stories about excess or tight supply carry more weight.

Want an example from our supply-conscious times? On Tuesday, Sept. 18, crude prices and oil stocks fell on a surge in inventories as crude oil stockpiles rose by 8.5 million barrels to 367.6 million barrels. That blew through analyst projections of a 500,000-barrel increase. On the day, the price of a barrel of U.S. benchmark West Texas Intermediate fell 3.47% to $91.98. ExxonMobil (XOM) closed down 1.18%; Pioneer Natural Resources (PXD) dropped 1.45%; and Total (TOT) retreated by 0.88%.

It's not that investors don't want to hear stories about rising demand for commodities and rising commodity prices. It's just that good news about demand has a hard time getting a hearing because we're focused on supply.

And that suggests a strategy for investing in commodities and commodity stocks during a period like this, when the news is dominated by stories about supply. And that strategy leads me to gold and platinum right now. Here's why.

image: Jim Jubak

Jim Jubak

Watch the supply side

The strategy is simple: Invest in commodities only where supply is tight, falling or in danger of disruption. The best supply-side investment, if you can find it, is in a commodity sector where prices have been hammered by worries about rising supply but where supply disruption is just around the corner.

If you think those are tough to find, you're right. It takes a lot of digging to ferret out a situation like that. But I think I've found one.

Fortunately (for investors, not for workers in the industry), we're looking at an extended supply disruption scenario in the South African mining sector. I'm going to tell you about that today and suggest a few stocks that could run up on this disruption.

What leads me to South Africa

So let's get down to specifics. I've put together a summary of the Wall Street consensus on supply for some basic commodities.

  • Commodities where Wall Street is forecasting that supply will exceed demand -- which isn't good for prices, of course. There's no shortage of aluminum, nickel, zinc or thermal coal (coal for power plants) in 2013, according to Morgan Stanley. And 2013 will be the third straight year with a glut of lead, says Barclays Capital. The International Energy Agency forecasts record oil demand in 2013, but it also says that inventories are comfortable.
  • Commodities where Wall Street sees the potential for shortfalls in supply, which is good for prices. Gold production won't keep up with demand, thanks to the turmoil in South Africa's mining sector. In 2013, copper supply won't meet demand for a fourth consecutive year, says Morgan Stanley. Corn and soybean supplies are low, because drought in critical production areas promises to cut harvests and stockpiles are already at historically low levels.

The biggest short-term gains from a supply-side commodities strategy come when a commodity thought to be in supply excess turns out to be in scarcity. That requires a serious supply disruption.

And that's what we've seen recently in South Africa's platinum sector.

Strike and shutdown

A six-week strike that began on Aug. 10 shut down production at the Marikana mine owned by Lonmin (LNMIY) and ended only after violence took 46 lives.

The strike and mine shutdown -- and the threat of other mine shutdowns -- completely reversed assumptions about the short-term supply-and-demand situation for platinum. The assumption had been that falling demand from automakers that use platinum in catalytic converters would see supply outstrip demand. That sent platinum prices tumbling, but then the strike generated big revisions in the supply-and-demand picture.

Suddenly, platinum prices soared, rising about 20%. Platinum miners without exposure to South Africa rose even faster. Shares of Stillwater Mining (SWC), the sole major producer of platinum in the United States, went from $9.49 on Aug. 10 to $13.91 on Sept. 14, a gain of 47%. Shares of North American Palladium (PAL), a Canadian company that is the only other major producer in North America, went from $1.50 to $2.15 a share, a 43% gain, in the same period.

The price of platinum fell on Wednesday and Thursday, Sept. 19 and 20, on news that the strike had been settled with a pay raise of between 11% and 22%. That might lead you to conclude that you've missed out on this supply-side chance.

But you'd be wrong. The disruption in South Africa's mining industry is much too serious to be settled by the end of one strike.

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