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Why Palladium, Why Now?

 

By Krista Muhr                   Printer Friendly Version
January 19, 2006

www.napalladium.com

   

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.

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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.