Tuesday, October 17, 2017
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Palladium Bullion

Palladium Bars Palladium is produced as a by-product of platinum and nickel mining, and is one of a group of six metals often referred to as PGM's, which stands for Platinum Group Metals. This group includes well-known platinum and the relatively obscure metals called rhodium, iridium, ruthenium and osmium. The primary uses for palladium are electronics, cold fusion experiments, and auto catalysts.

The price of palladium has historically remained low for a number of reasons. South Africa and Russia are the biggest suppliers of palladium, with Russia accounting for almost 50% of annual global palladium supply. Both countries have been dumping all they can produce on the market. Palladium is priced in dollars and today's low prices coupled with the US currency's recent drop mean that both nations are getting paid less for their metal in terms of real value. With a low palladium price and a declining dollar, it is likely that both South Africa and Russia will re-think their export policies. Russia, in particular, holds the key to price and it wouldn't be a surprise to see them hold back supply in order to raise prices.

Another reason why palladium prices have remained low is that in 2001, the Ford Motor Company was convinced that the palladium price would stay high and stockpiled 1.8 million ounces. It has taken the last four years to liquidate this stockpile, which is now exhausted. Once it is fully liquidated, a huge weight on the palladium market will be lifted.

The biggest demand for both platinum and palladium comes from the global auto industry, which uses both in the catalytic converters necessary to meet increasingly stringent clean air requirements. In 2003, approximately 39% of total platinum demand came from the auto industry. The figures for palladium were even higher; roughly 58%.

Since both platinum and palladium are used to reduce auto emissions, they will compete with one another on price. Automakers will use whichever one gives them a bigger bang for their buck. In early 2001, for example, palladium reached a high of $1,090 per ounce. At the same time, platinum was trading for $623 per ounce. As a result, the auto industry retooled their catalytic converter production lines to use mostly platinum. This process of retooling takes some time, and prices of the two metals adjusted as the switch took place. The impact is clearly visible in today's prices but at some point, the gap between platinum and palladium will narrow as automakers once again retool their production lines to accommodate the less expensive palladium.
Perhaps the biggest demand for palladium could come from China, which is home to the fastest-growing automobile market in the world. In China last year, the number of cars on the road jumped by nearly 50%. Sales of domestically produced automobiles soared by 70%. The number of cars on the road is expected to increase at least 10-15% per year through the rest of the decade. At the same time, China has announced its intentions to impose strict emission standards prior to the 2008 Olympics, to present modern China to the world. More stringent emissions standards mean better catalytic converters, and that means more platinum and palladium.

If current trends continue, palladium could easily rally back over the $1,000 per ounce level within the short to mid-term.