SUPPLY

The two main sources of palladium supply are mine production and secondary recovery.  In 2009, approximately 7.6 million ounces of palladium were produced, of which approximately 6.3 million ounces came from mine supply, and 1.34 million ounces from secondary recovery.  This represents a 5% decline from 2008 levels, and a third consecutive year that newly refined palladium supply declined.

The largest PGM deposits are found primarily in:

• Russia (43%)-  where almost of all the country’s palladium is produced by Norilsk Nickel as a by-product from nickel mining;
• South Africa (41%) – the world’s largest producing region for platinum, where palladium is produced as a by-product; and
• North America (11%) - where North American Palladium is one of only two primary palladium producers. 

There has been considerable speculation about the current holdings of the Russian government’s stockpiles that were accumulated in the 1970’s and 1980’s.  While this remains to be a state secret, credible forecasters and even Norilsk’s deputy CEO, have publicly stated that they believe the state stocks have declined to relatively low levels and will not be a decisive factor in the palladium market going forward.

In South Africa, mining companies continue to be challenged by rising electricity costs, shortfall of skilled labour and water, mine safety issues, and the strengthening South African rand (against the U.S. dollar).  These problems are expected to continue to affect miners, and coupled with rising mining cash costs, will likely limit palladium supply from South Africa.

Source: CPM Group, June 2010

DEMAND

Demand for palladium continues to grow, fuelled primarily by the automotive sector which consumes over 50% of world palladium production for the manufacture of catalytic converters (also referred to as mufflers in cars) which help reduce toxic emissions into the environment.

Fabrication Demand in 2009:

Key factors affecting demand include:

• The increasing vehicle production in China, India and Brazil- which are forecasted to lead the growth in the automobile market;
• Stricter emission controls that mandate the use of catalytic converters;
• Technological advancements for palladium’s use in diesel catalytic converters; and
• The recent growth in palladium electronically traded funds (ETFs).

Investment Demand

Like gold and silver, palladium is increasingly viewed as an attractive precious metal that can help diversify investment portfolios.  Palladium ETFs, which have only been around since 2007, have significantly contributed to the increased investor interest in palladium.  These ETFs are now trading in Zurich, London, Japan, and on the New York Exchange.  Together, the ETFs’ holdings are approaching almost 2 million ounces of palladium.

Palladium is increasingly behaving like a precious metal with investment and jewelry demand, yet has the fundamental underpinning of an industrial metal.

Source: CPM Group, June 2010