Palladium: A Hot Commodity
May 21, 2007

Palladium is this year’s best investment among precious metals, due to high demand, in large part from the auto industry, and tightening supplies, according to Bloomberg News.

A cheaper alternative to platinum, palladium is used in catalytic converters that reduce emissions from exhaust systems of motor vehicles. Palladium use has been increasing in all vehicles, and last year, it was used for the first time in diesel-powered cars. A palladium-based pollution-control device for diesels was developed in 2004 to replace the more expensive platinum-based ones.

The demand for palladium is increasing fast enough to outstrip the supply, Bloomberg reports. Supplies of palladium are declining because Russia, the producer of about half of the global supply, will slash exports for the second straight year, causing palladium prices to jump 37 percent to $500 an ounce by year-end, experts predict.

Platinum and palladium are mined together from underground deposits that also contain gold, nickel and copper. Almost all of the world's reserves lie in South Africa, Finland, Russia and Zimbabwe, with small fields in the U.S., China and Canada. Only a few new sources are coming on-stream, and the U.S. has only one producer of palladium and platinum, that being Stillwater Mining Co. in Billings, Montana.

At the same time, palladium demand will continue to increase. Palladium sales will rise 6.5 percent in 2007, precious metals consultant CPM Group told Bloomberg. Ford, General Motors and other automakers used 32 percent more palladium in car-exhaust systems in the past five years. In 2006 alone, palladium use rose 3.9 percent in 2006 to 4.02 million ounces, while platinum consumption increased 11 percent percent to 4.2 million ounces, according to Bloomberg.

The price of palladium has fallen 66 percent from a record $1,090 in January 2001, when Russia stopped exports. That decision culminated in a $1-billion loss at Ford. Ford had used forward and option contracts to lock in its palladium costs on concern prices would climb for the 1.5 million ounces it used in North America. Prices, however, plunged 72 percent by October 2001 to $305, creating the loss.

Palladium is also used in wedding bands as it is about half the price of platinum. Demand for palladium wedding bands is also growing, Bloomberg reports.

Posted by Michelle Krebs at 7:00 AM under Business , Ford , GM , Technology | Comments (0) | digg this | Seed Newsvine