Palladium

Palladium is the most commonly extracted element of the platinum-group metals, ranking even before platinum. Every year some 230 tons of palladium are mined. With 43% of the total, Russia is still the largest producer nation, though its share is declining. In contrast, production in South Africa has been rising for a number of years, and that country is now responsible for almost 40% of the world’s total. Since its new platinum mines, located in the eastern part of the country, contain a higher share of palladium compared with those currently being actively exploited, South Africa will account for an even higher percentage of the total in the future.

In Russia, too, this metal is only a byproduct, primarily occurring in connection with the extraction of nickel. It is only in the United States that an appreciable amount of primary production takes place, the two primary producers being Stillwater Mining and North American Palladium. However, their share of global new production amounts to only 14%.

Another 45 tons of the world’s supply have come from the sell-off of official Russian inventories, and another 30 tons have come onto the market as a result of recycling. The latter source is likely to become considerably more significant in the next few years, since the use of palladium in the automotive industry grew by nearly a factor of 10 between 1993 and 1999, and these vehicles are finding their way to the scrap press ever more rapidly.

Each year the market has access to a total of about 300 tons of metal. This amount is unlikely to increase significantly in the coming years, since the additional amounts gained from recycling will no doubt be offset by the global decline in new production. Moreover, it may well be that the exploitation of Russia’s secret stockpiles will not be possible in the amounts we have seen in the past; indeed, between 2006 and 2008 we have already seen a substantial decline in the amounts made available from those inventories.

Greatest demand comes from the automobile industry

On the demand side, the automotive industry is by far the largest consumer of palladium. With its demand for 136 tons, which amounts to 60% of the market, in 2007 the automotive industry was clearly the largest market for this metal. The electronics industry is in second place, accounting for some 20%. Next are the jewelry and dental industries with just less than 10% each.

The role of the automotive industry, but also of other goods that use internal combustion engines, such as motorcycles and small power lawn equipment, can be expected to increase further in the coming years. By the end of the decade, more and more countries will introduce more stringent emissions standards. Exacerbating the situation is the increase in vehicle sales we are already witnessing in the boom regions of Asia and Russia. It is not customary in these countries to use diesel engines in passenger vehicles, which means that it will primarily be palladium that is used in the catalytic convertors of these vehicles.

The second-largest sales market for palladium, far ahead of those that rank next, is the electronics industry. Following a catastrophic decline in 2002, sales in this industry have doubled to nearly 40 tons. However, this amount still lags far behind sales in 1999-2001; sales at that time were twice as high until a temporary halt of exports of Russian palladium drove up the price to $1,100, which in turn led the electronics industry to invest considerable effort in seeking possible substitutes.

After initial successes in 2004–2006, sales of palladium jewelry slowed down noticeably in the past year. This was probably because the industry failed to establish a clear (marketing) identity in its most important market, China, which accounts for about two-thirds of market share. Accordingly, in 2007 only 25 tons of this metal were used for jewelry in the world as a whole, nearly 50% less than in the peak year 2005. It is conceivable, however, that a change in strategy will occur in the future, so the amount sold in the coming years may again climb well above 30 tons.

In the past year palladium ranked second to silver in terms of the percentage of increase in its price. Overall, its value rose by 30% between early January and late December. This was largely due to general trends in the precious metals markets rather than to factors unique to palladium. In May 2006, when the other precious metals were at their highest price in many years, palladium rose to $406 per ounce. This was the highest level since at least January 2002, although it was still light years away from the 2001 all-time high of about $1,100 per ounce. Later on the value of palladium dropped once more, as was the case for related metals as well. The subsequent all-time low of $250 per ounce, which was recorded in the middle of the year, was, as it later turned out, a good buying opportunity. Against the background of increasing industrial demand as well as speculative purchasing, the metal quickly rebounded to a price range of between $330 and $375 per ounce.