| Palladium (Pd) is the relatively unknown
“sister” metal to platinum (Pt). These metals
share many of the same unique characteristics and physical
properties; both are non-tarnishing, strong and naturally
white precious metals. They are equally rare and are mined
together in less than a half-dozen regions around the world,
with no new near-term projects under development. Each has
a limited annual mine production of approximately 6.5 million
ounces, which is a mere fraction of the approximate annual
100 million ounces of gold that is produced. Due to past
market events, platinum is trading at over a US $700 per
ounce premium to palladium. Palladium’s price difference
with platinum, its limited supply in combination with its
increasing demand for existing and new uses, provides the
foundation for its long-term price appreciation potential.
Currently, palladium is trading at under
US $300 an ounce in comparison to platinum that is over
US $1,000 an ounce. These two metals historically traded
in a 2:1 range (Pt:Pd) prior to a market disruption in late
2000, when palladium surpassed platinum and spiked at over
US $1,000 only to reach a low of US $140 an ounce a few
years later. In specific applications these metals are virtually
interchangeable. The realized cost savings is a key driver
for manufacturers to begin substituting palladium for platinum
in order to reduce and/or maintain costs.
Palladium’s primary use (over 50%)
is in the auto industry where it is a key component in controlling
exhaust emissions as mandated by more stringent standards
for cars. These environmental standards must be considered
when attempting to forecast future demand for platinum group
metals. It is estimated that by 2011 China alone will produce
over 8 million cars (double its current production); all
of which will require a catalytic converter in order to
meet its government’s commitment to the Euro II standards.
Manufacturers are now confirming that with the massive price
difference between the two precious metals, they are planning
to substitute varying amounts of palladium for the platinum
in the converters. This will ultimately aid the long-term
price appreciation for palladium.
Palladium is also used in the dental, electronics,
jewellery and chemical sectors. This past year witnessed
an exponential increase in the use of palladium in the jewellery
industry. No longer is it only being used in combination
with gold to create white gold, rather consumers are seeking
an alternative “pure” and naturally white precious
metal to the significantly higher priced platinum pieces.
According to industry sources, for 2005 it is expected that
demand for palladium jewellery is likely to have increased
70% in China alone.
Finally, in addition to the above drivers
for the palladium price, the metal is beginning to make
headways into the investment coin sector. The one ounce
99.95% fifty dollar Palladium Maple Leaf Coin was the first
palladium product introduced by the Royal Canadian Mint.
Experienced and novice investors alike are beginning to
understand the long-term value associated with this rare
and precious metal.
The massive price imbalance between palladium
and platinum, its growing demand in the autocatalyst and
jewellery sectors, along with the introduction of the new
bullion coin by the Royal Canadian Mint, are all key factors
in the long-term potential for palladium’s price appreciation.
***
The content of this article is intended for
general information. Nothing contained herein constitutes
or is intended to be investment advice. This article reflects
the personal views and opinions of Krista Muhr. While the
information herein is believed to be accurate and reliable,
the author notes that there are a number of risks and uncertainties
that could affect the economic performance of palladium.
It is not guaranteed or implied to be so. The information
herein is provided in good faith but without any legal responsibility
or obligation to provide future updates. Neither Krista
Muhr, North American Palladium, nor anyone else accepts
any responsibility, or assumes any liability, whatsoever,
for any direct, indirect or consequential loss arising from
the use of the information in this article.
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