palladium – a sister to platinum, a “noble metal” with unique properties

Palladium is a sister to platinum, a “noble metal” (member of the platinum group of metals) with some rather unique properties that ensure a place for it in industry and as a precious metal investment.

This fascinating metal is tied closely with platinum from both history and its properties. Even so, important differences remain in physical properties and in today’s supply and demand economics.

Supply:

Palladium mines are deep and expensive to run. This only adds to the low-supply situation, as a lot of companies that mine this metal have a difficult time generating positive cash flow. Demand is currently outpacing supply. Russia was once one of the world’s largest producers of the metal. However, it has sold off the majority of its reserves.

There is also a supply deficit for palladium in South Africa. In South Africa, inter-national volatility, domestic uncertainties about the local mining charter, the rand strength and wage hikes are just some of the factors that have affected the profits of companies and added to the production costs that have reduced South Africa’s competitiveness in the international market.

Demand:

Palladium prices are largely driven by industrial demand. Palladium is used to manufacture catalytic converters for automobiles. Catalytic converters reduce the toxicity of automobile emissions. Since the auto market has begun to rebound from the recession, more palladium will be needed for vehicle production. It is expected that growing demands coupled with low supplies will continue driving the price higher. Palladium may also be in demand from the healthcare industry in the coming years. Using nano-particles of this metal, chemists have developed a method of synthesizing drugs inside the human body at the precise location where they are needed. This could help to curb the side effects felt on the rest of a patient’s body resulting from procedures like chemotherapy.

Palladium in the Auto Industry:

The connection between vehicle sales and palladium is important because the automotive industry consumes about 60 percent of the metal’s annual supply for use in emissions systems. A report by Johnson Matthey says that in 2010 only a few auto makers still used platinum in vehicles with gasoline engines, though platinum was once the predominant metal for this purpose.

Palladium is not as easily substituted in diesel emissions systems due to differences in the combustion of the fuels. But, even in diesel vehicles, an increasing amount of the palladium is being used and development efforts continue in hopes of further improving the substitution ability. Where palladium can be used as a substitute, the switch is likely to be made as it is a more cost effective solution to platinum.

Diesel vehicles are still preferred in the EU, but many of the other large or growing auto markets are predominately gasoline, including the US, China, Russia, Brazil and Japan, which provides strong support for palladium.

Even more on the upside is that tightening emissions standards are becoming a global trend. Stricter requirements are not only being implemented in developed nations but also in places such as Brazil, South Africa and China. Compliance will require the use of platinum group metals (PGMs), meaning there is likely to be palladium used where it hasn’t been used before and more palladium used in vehicles whose emission systems already contain the metal.