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
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.