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Palladium Demand Drives Prices Soaring

Written By Luke Burgess

Posted May 7, 2010

Palladium prices are soaring.

And investors are cashing in…

The price of palladium has skyrocketed 237% since December 2008, driving up the share prices of producers and explorers and reminding investors that there is more to precious metals than gold and silver.

So what’s pushing palladium prices higher?

Palladium has a number of industrial uses. It’s often found in electronics — including computers, mobile phones, and LCD televisions.

But roughly half of the global supply of palladium is used in the manufacturing of automobile catalytic converters, which convert up to 90% of harmful gases from auto exhaust like carbon monoxide into less harmful substances.

Palladium Demand

2005 palladium demand by sector

As such, the demand for palladium is generally correlated to the health of the global auto industry, which has rebounded from the brink of collapse. Automakers around the world have recently been reporting strong sales figures as the industry continued to see signs of recovery.

Ford says its sales rose 25% compared to April 2008, marking its fifth month of gains topping 20%.

Meanwhile, Chrysler posted a 25% gain in April — the first double-digit increase for the automaker in nearly five years.

Even nearly bankrupt automaker General Motors says its April sales rose 6.4%.

Toyota reported that its U.S. sales rose 24% in April from a year earlier, as incentives continued to spur demand.

Honda Motor says sales rose 13% from a year ago, while Hyundai Motors posted a 24% gain in sales.

Automobile sales have also increased in the world’s #1 car market, China. China’s automobile sales jumped 71% in the first quarter this year. Experts predict sales of automobiles in China to reach 16.5 million vehicles in 2010, a 10% increase from the 2009 level.

At a time when the demand for palladium is increasing, supply looks like it could potentially be constrained…

The world’s sources of palladium are extremely limited. Approximately 80% of the world’s supply of palladium comes for just two sources: energy constrained South Africa and potentially unreliable Russia.

Half of the world’s palladium supply comes from just three sources in Russia: Norilsk Nickel (OTCBB: NILSY), the Russian State Precious Metals and Gemstones Repository (Gokhran), and the Russian Central Bank.

Norilsk Nickel is the world’s largest producer of nickel and palladium. Each year the company produces about 2.5 million ounce of palladium.

But this isn’t enough to meet the world’s growing demand, so Russia fills the deficit from Gokran and the Russian Central Bank. However, there are rumors that these stockpiles are rapidly becoming depleted; the actual level of Russian palladium stockpiles is a state secret.

Rising demand and a potential for supply constraints has spurred heavy investment interest.

ETFS Physical Palladium ETF (NYSE: PALL) holdings have increased over 400% since first being listed in January, taking further supplies off the market.

All this has resulted in a doubling of palladium prices in the past year and a half… And shares of palladium producers have followed suit.

Palladium Stocks

Since most of the world’s palladium comes from South Africa and Russia, investing in palladium stocks can be a bit tricky. There are just a handful of large North American palladium producers including Stillwater (NYSE: SWC) and North American Palladium (AMEX: NAP)

There are a few smaller companies exploring and developing similar nickel-copper-platinum-palladium projects — including one that I am particularly excited about…

It’s a junior exploration and development mineral company with over 100,000 hectares, and it’s located smack-dab in between the two largest palladium deposits in North America.

To the west is North American Palladium’s Lac des Iles Mine, one of the largest palladium mines in North America. Lac des Iles has 3.7 million ounces of palladium resources and is projected to produce 140,000 ounces next year.

To the east is Marathon PGM’s Marathon Mine — containing 2.4 million ounces of palladium reserves plus 3.0 million ounces of palladium resources. It was just bought by Stillwater Mining (NYSW: SWC) for $118 million.

Take a look for yourself:

September 2010 Great Lake Map 600x308

These are two of the most important palladium mines in North America.

Every junior palladium explorer wants land around them.

This junior company has already made the discovery of a palladium deposit on one of its many mining claims of 730,000 ounces of palladium-equivalent resources…

But the company is actively working to upgrade and increase its palladium resource base.

The target: 2.6 million ounces of palladium-equivalent resources.

And it’s worth 12.6 times more than the company’s current market cap.

This means that — once this company becomes resource-heavy and properly valued — share prices could increase 1,163%.

And that’s just at current palladium prices!

The last time palladium was entering a similar bull market, prices rapidly surged from $160 to over $1,100 an ounce — a 588% increase!

Fortunately, palladium prices have pulled back quite a bit, allowing for a buying opportunity. And if we have a similar bull market for palladium, prices could hit $3,438 an ounce!

With palladium prices nearing $3,500 an ounce, the investment gains from this small stock will start to increase exponentially…

I’ve already taken up too much time here. There’s a lot more to this story that I want you to hear.

I haven’t even begun to touch on how palladium prices are about to be forced higher by the global auto industry’s “big switch.”

But you can learn more about the global palladium industry and how the auto industry’s “big switch” will drive prices even higher simply clicking here or copying and pasting the following link into your internet browser’s address bar:

Good Investing,


Luke Burgess
Editor, Wealth Daily
Investment Director, Hard Money Millionaire and Underground Profits