What’s so good about palladium?

Palladium is the little sister, but not the poor little sister, to platinum amongst the platinum group elements (PGEs). While palladium is not as pretty as platinum, it is preferred in many industrial uses. For this reason, both the demand and the price of palladium have recently been outstripping those of platinum.

Palladium has traditionally fetched a lower price than platinum, but has traded at a premium since the beginning of 2000, going as high as US$1,080/ounce in January 2001. By mid-2001, it was trading around US$585/ounce.

Since 1996, the growth in demand for palladium has come from the autocatalyst sector. In 2000, the world demand for palladium was 8.9 million ounces, according to Johnson Matthey’s Platinum 2001. Of this, 61% was for autocatalysts, 24% was for electronics, and 9% was in dental applications.

Catalytic converters reduce by 95%-97% the three main exhaust pollutants from spark-ignited combustion engines–unburned hydrocarbons, carbon monoxide and nitrogen oxides–compared with the uncontrolled exhaust emissions of the 1960s. Converters have been required in all cars built in the last decade. They are made of extremely fine ceramic mesh wash-coated with about 0.2 ounce of precious metals, mainly palladium but also platinum and rhodium. Each catalytic converter contains about US$50 worth of palladium.

Palladium use in car and truck autocatalysts grew by 24% in 2000. This should continue to grow, with global governments legislating more stringent exhaust emissions standards for gas-powered vehicles.

The electronics industry has had some success in substituting much cheaper base metals for palladium, especially in multi-layer ceramic capacitors. However, the boom in the electronics sector has increased its demand for both base metals and palladium.

Of the 7.79 million ounces of palladium supplied last year, 67% came from Russia, 24% came from South Africa, and 8% came from North America (the Stillwater underground mine in Montana, and Lac des Iles). According to Platinum 2001, “… throughout the 1990s [Russia] supplied metal both from new production and from stockpiles built up in earlier years. Uncertainties about the level of sales from these stocks and the quantities that remain have added greatly to the volatility of the metal’s price, especially during the… past five to six years.”

As long as Russia controls the bulk of the world’s supply, the palladium market will remain as uncertain as the Russian economy. This is likely to drive the main purchasers into the arms of more stable sources, such as the two North American mines.