Sunday, October 9, 2011

Palladium Is Widely Used, Similar to Platinum and A Lot Cheaper than Gold & Platinum Group Metals (Rhodium) so Bullion Investment Should Increase; 2011 Production Down 5.4% but Automotive Demand Up 6.7% (Norilsk, Anglo Platinum, North American Palladium)

        Palladium is a widely used durable and versatile metal. Though useful in plating jewelry, clothes fasteners and engine systems (aircraft and automotive) most of the demand comes from industries that require catalysts (mainly catalytic converters, useful due to its light weight, high boiling point, is an oxidizing agent) and versatile metals used in plating conductive materials; In electronics, palladium is preferred over nickel and platinum (plating the electrodes of capacitors is either alone or palladium in conjunction with silver); For plating electrodes, the only alternative to palladium is nickel but nickel has its limitations, it can only be used in less demanding applications. In automobile circuits, palladium holds silver plated conductive tracks in place. (Platinum today: Electric Components) Some types of jewelry prefer palladium to gold/platinum for reasons which include color (44% whiter than platinum), weight (38% lighter than gold), hardness (harder than gold meaning that even at high purity it's highly resistant to scratches), and price (cheaper than gold and platinum). Even with those advantages the jewelry industry uses most of it only as a hardening and whitening agent that's alloyd with gold (white gold can't be made without platinum group metals like palladium which is notable considering that white gold is gaining popularity particularly among brides preferring white gold wedding rings). The process of transforming yellow gold to white gold is made easier when gold-palladium alloys are used because gold and palladium are soluble in one another. Palladium is also used to purify hydrogen gas because when heated, the metal allows hydrogen to diffuse through it, a process that's made easier by the metals' high melting point.
       Other info: The Spanish were among the first to discover it when they mined for silver in Colombia. Palladium was first isolated by WH Wollaston in 1803, at the same time he discovered Rhodium. In late 2010 George Soros affiliated fund, Soros Fund Management raised its stake in Platinum Group Metals Ltd (one of Canada's largest platinum group metals exploration companies) to 9.73% from under 1%. Platinum Group's primary asset is the Western Bushveld Complex in South Africa (74% interest/20 year mine life @ 275,000 ounces/yr but the mine will cost over $400m & take two years to construct); Platinum Group Metal's shareholders include JP Morgan and TD Asset Management. The ETF Physical Palladium Shares (PALL) holds over $500M worth of palladium (in terms of bullion weight, the etf's holdings are presently 6X more than they were just 4 years ago).

Investment Options: ETF'S - Top pureplay options are NYSE:PALL Palladium Silver Shares ETFS and NYSE:LPAL VelocityShares 2x Long Palladium ETN.  PALL holds around 700,000 ounces of the white metal but has exceeded one million ounces as recently as 2011 (holdings increased with the dramatic rise in palladium prices).  VelocityShares ETN is relatively new; ETN's are debt instruments so they are not considered great options for long term buy and hold investors (why VelocityShares holdings of palladium are wildly inconsistent).  VelocityShares began trading mid October 2011.  Diversified ETF options Zurich Cantonal Bank, or ZKB ETF has holdings of palladium (387,257 ounces) and platiunum (366,957 ounces).

The number 1 source of demand is vehicle manufacturers who make use of its capabilities as a catalyst in catalytic converters. The catalyst is required to stimulate an oxidation reaction that ultimately converts toxic combustion byproducts to carbon dioxide and water (reduction of NO to O and N is by rhodium).
Palladium accounts for 90-95 % of precious metals used in catalytic converters (95% for gasoline/20% in diesel powered vehicles) and even more noteworthy, palladium's share of diesel catalysts rose from 7% in 2007 to 20% in 2009. Each catalytic converter uses 4 grams of palladium and platinum. Palladium shares many characteristics with platinum, not surprising given that palladium is one of only six transition metallic elements comprising the Platinum Group of the periodic table (the other four being rhodium, ruthenium, osmium and iridium). Among their similarities: all are great catalysts, are hard metals making them resistant to scratches. They also have high boiling points and are noted for their electrical properties. As for platinum, its share of diesel catalysts fell to 80% compared to 86% in 2008 owing to the increased popularity of palladium. Between June 2010 and June 2011 3.1m oz of platinum was used by automakers (compare that to 5.4M ounces for palladium) however jewelry demand for platinum waned (15% less, bringing it down to 2.4M ounces; palladium jewelry demand fell 20% to 0.6M ounces), that's in contrast to late 2008/2009 when lower prices boosted demand by jewelry 70% with growth recorded in China. (Northram Platinum Ltd July 2011 Annual Report. Angloplatinum 2009 Report) With regards to rhodium, South Africa produces 60% of the extremely reflective/corrosion resistant platinum group metal ranking just ahead of Russia. In 2009 the spot price of rhodium dropped like a rock; it averaged only $1,509/oz that year after averaging $5,174/oz the year before. In 2009 gold was the only metal with an iso currency code to avoid a price decline (averaged price). One of rhodiums key uses is in the production of nitric acid (nitric acid is one of the compounds usedby jewelers to verify whether or not something is real gold). Supplementary info Trends in the gold to silver & gold to platinum ratios Palladium demand by end-market : auto catalysts (54%), electronics (14%), investment (9%), dental (9%) & jewelry (8%). (Stillwater Mining 2010 annual report)
In 2010, 80% of the world's palladium came from Russia (2.7-2.9 million ounces, steady from 2008 to 2009 but down 16% from 2006) and South Africa (2.485M oz same as the previous year but down 11.3% from 2007). South Africa is home to some of the biggest platinum-palladium mines in the world namely those in the region of the Bushveld Igneous Complex (South Africa just behind Russia at 40% for palladium production but leads all countries in platinum supplying 80% of that metal (4.725M ounces). The 2011 global supply of palladium is forecast to decline 5.4% yoy to 6.8M oz from 7.1M oz in 2010 & 7.6M oz in 2009. 6.3M oz of the supply was mined. Palladium supply from the top 3 sources (Russia, South Africa, North America) is down 18% in just the last four years (2006: 6980M oz vs 2010: 5545M oz). There are a number of problems regarding supply, firstly mine depletions particularly in Russia where Norilsk has become the only major producer, also Russian stockpiles are dwindling which is significant given that traditionally it has been the largest source of non mined production (total non-mined prod: approximately 1.3 million ounces annually). Also of concern: deeper mine shafts in South Africa (mines are being made deeper because that's where the high grades are) and so there are safety concerns, the country is also struggling with foreign exchange rates and their affects on currency losses. (Stillwater Mining Company: March 2011 Presentation) Palladium primary production has fallen even faster than it has for platinum (-15% vs -12% since 2006). Stockpiles in Russia, the source of 17% of Pd supplies since 1984 are almost entirely exhausted.

In catalytic converters, palladium now accounts for over 95% of the catalysts used, up from 85% in 2007 (Stillwater Mining, March 2011) meaning that the automotive industry (a growing industry sector with 40-50 million people entering the middle class each year in China, Brazil and other rapidly developing countries) is becoming ever more reliant on palladium (6% increase in palladium use by automakers in 2011, 5.5M ounces, each catalytic converter uses 4 grams of palladium + platinum). In 2010 72 million light vehicles were produced and that number is expected to grow to 88 million by 2013 reaching 100 million by 2016. Strict pollution controls mandate the use of catalytic converters. (North American Palladium, October 2011)
September 2011: HSBC, the world's #2 bank outside China, raised its 2012 price forecast for palladium by 8% to $810/oz citing the fact that demand will outstrip supply (in stark contrast to the previous two years). Long term price forecast raised by 21% to $850/oz. However other top banks are forecasting even higher palladium prices in 2012; JP Morgan and Credit Suisse have the spot price pegged at $938/oz and $950/oz respectively (the lowest forecasts were made by UBS ($825) and BNP Paribas ($810) *of note RBC lowered its outlook from $1000/oz to $860/oz. Between October 2008 and September 4, 2011 spot palladium increased by over 290% compared to 133% for platinum, 200% for gold and 0% for rhodium. Despite similar production (over 6M ounces), demand for palladium by end market users exceeded platinum demand by 24.0% (7.0 vs 5.72 million ounces). (Stillwater, March 2011) 91% of the world's 6.8M ounces of annual palladium supply comes from South Africa (42%), Russia (40%), and North America (9%) (includes about 1.3M ounces of secondary supply). (North American Palladium, October 2011) Here is more info on gold/silver investing

 More Reason To Like Palladium: Shipments to Switzerland (1 of only 2 main hubs in Europe for storage of the metal) from Russia (world's largest primary producer of palladium) are down to 500,000 ounces in 2010 (average 1.3M ounces for the last 20 years); The main reason for the decline is that Russia used to have four big producers but today they only have one, the rest have nearly exausted their reserves (the largest of them, OAO GMK Norilsk Nickel could also be deplete of palladium by 2015-2020). For 2011 output is forecast to fall by 5.4% to 6.8M ounces even though demand from carmakers alone will increase 6.7% to 5.5M ounces. Russian stockpiles form the fourth biggest source of palladium supply. The price of palladium peaked in 2001 at $1,090/oz when concerns regarding supply caused many to hoard the white metal. There are also ETF's that hoard palladium; they first began trading in 2007 and have since grown their assets to over 2M ounces (currently they trade in Europe (Zurich, London), the United States (NYC) and Japan). Total annual supply of palladium was as high as 8.58 million ounces in 2007 but has since fallen to around 7 million (6.8M in 2010/7.1m oz in 2009) a 17.2% decline even though total gross demand only fell by 7.4%; During that time Russian supplies fell 19.93% and that's directly responsible for 61.15% of the global drop in supply (1.48m ounces). (Aquarious Platinum) 2009 combined production of platinum group metals was only 16% as much as gold (Au: 2572 tonnes about the same as in 2005); Three of the top five sources of gold, the USA, South Africa, Australia combined, produced 21.1% less of the yellow metal in 2009 than in 2005.

If you wanted to invest in a company here are a few to keep in mind:

Stillwater Mining produces 63% of the palladium coming out of North America (or 5.7% of the global supply) which is notable since North America is the world's #1 source of palladium demand (29% in 2010 ahead of China at 20%). Stillwater's reserves are at 19.9M ounces (palladium and platinum). In 2010 metals recycling contributed 6.8% of total revenue ($11.5m/$168.5m) down from 7.9% in 2009 ($6.5m/$81.8m). Average price realization per ounce of metal produced: $1,046 up 34.3% from the year before ($779/oz). Since 2002 it has had business relations with Norilsk, that has opened the door to more investment from abroad (though sales of palladium received from Norilsk ended in 2006). 2011 capex at $120 million up 139% in just the last year. Stillwater is a primary producer of platinum and palladium meaning that anything else that it mines (rhodium, gold, nickel, silver and copper) is produced as a byproduct. About 3/4 of Stillwater's output of platinum group metals comes from the Stillwater Mine (the other 133,000 oz is produced at East Boulder). North America contributes 9% of total supplies of Pd but 11% of primary production. Last year Stillwater Mining paid $118 million for the Marathon mine in northern Ontario (2.4M ounces of palladium 2P reserves/total resource 5.4M ounces).

(gold:platinum ratio 2007-May 2011)
North American Palladium (tsx:PDL, amex:PAL) (41% fall in stock price over last 12 months means it has a high beta value) - The company is the only primary producer of palladium in Canada. Flagship mine is Lac des Iles abbreviated LDI, located in Thunday Bay, Ontario; LDI is currently undergoing a $250 million shaft expansion (October 2011) intended to eventually raise production at the mine to 250,000 ounces by 2015 (when cash costs are forecast to be lower at $200/oz). LDI: The second quarter of 2011 produced 28.9% more ore than Q` and at a 29.4% higher grade (cash costs fell 35.5% quarter to quarter). First phase of the project commences producing the last quarter of 2012. 2012 production for NAP is expected to be in the range of 190-200,000 ounces. The company's other operating mine, Sleeping Giant is part of its gold division and is located in Quebec. Sleeping Giant has very high cast costs (over 1550/oz) because ore grades have been low (but will climb due to deeper access later on). Sleeping Giant was acquired in 2009 from iamgold (expected to produce 40-50,000 ounces in 2012). (Miningweekly: NAP expects palladium output to rise 75% this year) Total palladium production by NAP was 95,100 ounces in 2010 but is forecast to increase by 75% in 2011 to 165,000 ounces, palladium cash cost in 1Q11 was $519/oz but that dropped to under $400/oz by Q2. NAP has operated in Thunder Bay for over 17 years. Overall production costs for NAP are forecast to drop to $125/oz from $325/oz in 2009 (60% decrease). ( North American Palladium Mine Celebrates Reopening) Between November 2010 and February 2011 North American Palladium stock increased by 51% on the back of higher palladium prices (week of January 30,2011 spot price was above $800/oz). The other gold mine, nicnamed Vezza is located just north of Sleeping Giant. The whole Vezza-Sleeping Giant region contains 1.379 million ounces of M&I + Inferred gold but 2P reserves are only at 52,000 oz so a lot of investment is needed to upgrade resources. Vezza isn't expected to come on tap until 2013 but when it does it will immediately add about 40,000 ounces of gold to production (combined with Sleeping Giant total production could be as high as 80,000 ounces). Palladium production: 95,057 oz (2010), 145-165,000 oz (2011). About 90% of revenue comes from palladium (4Q10 revenue: $35.2M from LDI, $4.2M from Sleeping Giant).

Norilsk - One of the world's main sources of nickel also supplies the world with 11% of its platinum and 20% of its palladium. 2P reserves: 68.457M ounces of palladium (55.018M oz) + platinum (13.439M oz). (Norilsk 2011 Fact Sheet) In 2010 9% of Norilsk's revenue came from palladium (compared to 12% for platinum; largest was nickel at 53% and copper at 24%, gold was only 1%). Norilsk accounts for virtually all of Russia's production right now with the other 3 Russian companies having resource problems. In Russia and South Africa palladium is produced as a by product of other production (platinum/nickel), only a few of the world's mines focus on palladium as the primary source.

Anglo Platinum - One of only a few companies that actually increased palladium production in 2010 (by 9% up to 1.485 million ounces - 2.5699 million ounces for platinum also up but by half as much 4.8%). Rhodium produced: 329,000 oz down from 350,000 oz in 2009. 2P ore reserves (platinum, palladium and rhodium (2011): 165.5M oz down from 170.5M oz in Jan. 2010: 53% of 100% owned production reserves are at UG2 Reef (there are four sources in total). There's also another 0.8M ounces at a tailings facility and about 5M ounces stemming from interests in a mine named Unki. In addition there are antoher 620M ounces of measured and indicated resources. In fiscal 2009 Anglo's revenue fell 28% to R36,947M under R39,000M for the first time since 2005; gross profit margin down to 5.4% from 33.7% owing to the global financial crisis reducing demand and prices starting in late 2008; prices and demand didn't recover until the second half of 2009. Cash from operations fell from over R18,000M to under R6,000M in 2009 the lowest level in more than five years. Anglo Platinum ranks third among major producers in terms of its PGM reserve life, 36 years which lags only Anooraq (47) and Stillwater (40).

Anooraq Resources - Assets in South Africa (July 2009 acquires control of the Bokoni platinum mine) 350 NE of Johannesburg; Grade 4.2 g/t vs industry avg of 3.5 g/t. There are also two other major projects nearby. Bokoni produces 120,000 oz of PGM annually but is forecast to rise to 220,000 ounces by 2014 due to phase 1 expansion. It is a 200M oz resources but only 1.76M ounces have been extracted from it since 1973. The other project Impala has operated since 1969 and has a resource of 68M oz. Platinum contributes 60% of revenue with palladium at 16%. Capital expenditure is currently $45.7M rising to $47.6M in 2012 and $48.3M in 2013. (Anooraq Resources BMO Capital February 2011)Northam Platinum - South African mining company. In 2010/2011 it reported sales declines for most of the PGM including -17.8% for rhodium (732 kg), -22.0% for palladium (2,821 kg), -18.9% for platinum (6,118 kg), -26.1% for ruthenium (999 kg) and -17.7% for iridium (241 kg).

Lonmin Ltd - About half of production (0.75/1.5M ounces of PGM total) is in platinum. 8.9% of 2010 revenue was in palladium ($141/$1585m) that's up from 6.4% ($68/$1062m) in 2009. Revenue by continent is balanced with Europe ($529m) and America ($453 double what it was in 2009) leading the way. Though revenue expanded 49.25% cost of sales increased by only 13.60%. Although revenue improved in 2010 it is still relatively low as compared to previous years (ranged from $1855m-$2231m from 2006 to 2008). Underlying earings per share have also suffered (between 282.4 and 335.8 cents btw 2006 & 2008 but in 2010 it was just 70.2 cents (56.9c basic). Only about 40 people work for the company.

Northern Platinum Ltd was merged into Prophecy Coal Ltd mid 2011. Some of the world's biggest companies also have reserves of palladium but the metal is of only minor importance (at Vale for example only 1% of its revenue from PGM metals comes from palladium; Vale's Pd reserves are 4.0M ounces).


  1. Great post,, Gold has been advancing for over 10 years now, from a low of $252 per ounce in 1999 to where it sits today at $1,755, which is a gain of over 595%. With gold at unprecedented levels (previous bull market high was $850/oz) is it any wonder why someone would question starting to acquire gold?
    us gold coins

  2. great point. a couple other points:

    rhodium doesn't have an ISO currency code (investing in it isn't as easy), rhodium was as high as 10,000/oz as recently as 2008 (averaged over $5000/oz that year but then lost 70% of that value in 2009). Palladium has a slightly lower boiling point than the other 2 but it doesn't appear to make a difference, the main industrial uses are similar for all 3 with palladium becoming increasingly popular mostly because it's so much cheaper. 2009 approx. production gold: 2500 tonnes, palladium 215 tonnes. When people regain confidence in the world economy I'd expect gold and palladium to be a lot closer in price than they are now. On October 4, 2011 Credit Suisse forecast 2013 spot prices as follows: gold $1790 (dropping to 1425 in 2014), palladium $920 (previous forecast was $1200, today (Oct 10) palladium is at around $610/oz.