Monday, August 27, 2007


Palladium and PGM

Ruthenium, rhodium, palladium, osmium, iridium, and platinum together make up a group of elements referred to as the platinum group metals (PGM). Palladium It is the least dense and has the lowest melting point of the platinum group metals. It is soft and ductile when annealed and greatly increases its strength and hardness when it is cold-worked.

It is found associated with platinum and other metals in deposits in the former USSR, North and South America and Australia. It is also found associated with nickel-copper deposits in South Africa and USA. This metal has the uncommon ability to absorb up to 900 times its own volume of hydrogen at room temperatures, also hydrogen easily diffuses through heated palladium; thus, it provides a means of purifying the gas. Finely divided palladium is used as a catalyst for hydrogenation and dehydrogenation reactions, as well as in petroleum cracking. A large number of carbon-carbon bond forming reactions in organic chemistry are facilitated by catalysis with palladium compounds.

History of Palladium

William Hyde Wollaston discovered palladium in 1803-4 in crude platinum ore from South America, William Hyde Wollaston also named it after the asteroid Pallas, which was discovered approximately the same time. Pallas was the Greek goddess of wisdom.

For over a hundred years, palladium was fairly rare, in 1930 a Canadian company began producing palladium in significant quantities from its rich ores, and the metal became more widely available: for the first time, industry had affordable palladium, and was able to put its unusual properties to work. Palladium price remained stable in a trading range (25-50 USD per ounce) up to the beginning of the Seventies. Inflation, increasing metals demand for industrial applications contributed to a price increase of Palladium in the Seventies: Palladium priced reached 270 USD in February 1980 and later it stabilised in a trading range (100-150 USD) in the Eighties and in the first half of the Nineties till 1996. At the end of the Nineties new industrial applications for Palladium changed dramatically its market: modern catalytic converters rely heavily on palladium and its sister metal, platinum. These devices convert up to 90% of harmful gases in auto exhausts (hydrocarbons, carbon monoxide, and nitrogen oxide) into less harmful substances (nitrogen, carbon dioxide, and water vapor). The biggest palladium supplier in the world is Norilsk Nickel in the Russian Federation: in the year 2000, Norilsk’s deliveries of palladium became unreliable, that supply interruptions resulted in a spike in price: Palladium reached an all time high of $1090 per ounce in early 2001 when market panic buying forced companies like Ford Motor Company, in fear of auto vehicle production disruption due to possible palladium shortage, to stockpiled large amounts of the metal. Prices subsequently fell in early 2001, when Russian deliveries resumed and the sale of Soviet-era Palladium inventories depressed the Palladium price for the following few years. The price of Palladium started to recover from a low of 175 USD in 2003 and it is now trading in a new range (300-400 USD). Today, palladium is in a unique situation. The metal is in demand from a wide range of global industries, yet is supplied by only a few mines across the world.

Thus, any interruption to supply can have a dramatic impact on prices. Today, scientists are studying even more uses for palladium. The white metal is playing an especially key role in fuel cell research. The fuel cell is an exciting new technology: a device that combines hydrogen and oxygen, producing electricity, heat, and water, with virtually no pollution. The fuel cell promises to completely transform modern society, and palladium plays an important role in current research. Truly, palladium is a metal for the 21st century.

Given the strategic importance of Palladium for the automotive industry, for the future of the hydrogen economy and for fuel cell developments it is particularly interesting to observe that in real terms the price of Palladium is now below its price of the Seventies and may be a huge buying opportunity, especially considering how tight the supply of Palladium is. No new resources have been discovered and if they are it will take years to develop the new mines, while demand may suddenly increase for any new application involving Palladium in electronics, fuel cell. To better understand the supply tightness of Palladium one should think that Gold mining supply per year has been on average over the last few years approximately 85 millions once per year while Palladium mining supply below 8 millions ounces per year (1/10 of Gold mining supply).

The cheapness of Palladium is also evident when looking at the Platinum-Palladium spread: palladium has never experienced such a discount to Platinum.

The reduction of carbon dioxide under the Kyoto document may give additional impetus to further develop catalyst solutions which is expected to favour the use of palladium in this process. So, what is keeping the price of Palladium so low? To answer this question it is important to remember that Russian palladium shipments are of the greatest importance for world palladium markets. The Russian Federation dominates world palladium production and supply through Norilsk Nickel output and strategic state stockpile sales. These Russian palladium stockpiles were built in times of excess supply, during the seventies and eighties, and used in order to balance the market.

When Norilsk Nickel production can not meet growing palladium demand, the gap is filled by State stockpiles from Gokhran, the Russian precious metals agency (which is part of the Ministry of Finance), and the Russian Central Bank. The actual level of Russian stockpiles of palladium is a closely guarded State secret. However, it is believed that Russian stocks of palladium might have fallen to very low levels. It is also widely believed that much of the Russian palladium may already be in the hands of western banks as a result of collateral deals for loans. More analysis on the Russian Palladium stockpiles in the next posts.

DISCLAIMER: Please do your own diligence. I am not responsible for your trading decisions, I am not an investment advisor/professional. This blog, is general market commentary only. It is not intended as specific advice. You should talk to your own investment professionals for specific advice.

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