Palladium Review

Hedge funds support palladium market as jewellery becomes major demand sector. In 2005, palladium established itself as a force to be reckoned within the global jewellery market. Although excess physical supplies continued to hang over the market, Chinese manufacturers took just over 1.4 million troy oz, as demand continued to grow there, and also to a much lesser extent in other countries. Hedge fund interest was substantial and provided much needed support over the course of the year.

Autocatalyst usage, most of which is seen in the USA, was off slightly due to increased thrifting. Russian sales were much lower than in 2004, helping to shave about 400,000 troy oz off of the prior year's surplus and bring the market closer to balance.

Between January and September 2005, palladium prices traded primarily between $180 and $200 per troy oz. Hedge fund interest, especially in New York, saw net long positions hold in the 600k – 900k troy oz range over most of the year. As a result of the existing surplus and the large net long speculative positions, palladium lease rates remained well below the cost of money. As we entered the fourth quarter, fund commodity interest continued at a feverish pace. As it became apparent that the market was facing another record year in terms of Chinese demand, prices began to escalate sharply. In mid-October, palladium moved over the $200 level for good, actually touching $300 in early December. Fund selling ensued, and palladium made a quick retreat to close 2005 at $260 per troy oz. This represented an impressive increase of 41% from its level at the end of 2004.

2006 will be another interesting year for palladium. Chinese demand will be hard-pressed to repeat its record performance from 2005.

Much of the demand from last year can be attributed to inventory building. It will be fascinating to see if this abates, or extends to other areas in China. In other countries (U.S., Japan, EU), initiatives in palladium jewellery also look to be on the increase. The results of these new initiatives could potentially be significant. Demand from U.S. automakers is expected to increase modestly, as substitution for more expensive platinum-based systems begin to take hold.

Russian sales are unpredictable, but if they are lower or equal to 2005, physical surpluses may indeed shrink even further. South African producers are expected to provide a larger percentage of palladium to the market this year, the result of continued expansion. The hedge funds still hold the cards in terms of short-term price movement, and at this point it looks like they are content to remain on the long side in the hopes that prices will move higher.

Light, Bright, Precious - Time for Palladium?

Always at the cutting edge of fashion in the world of luxury accessories Swiss watch companies have begun to turn to a new watch metal as an alternative to white gold - palladium.

With platinum reserved for their most exclusive designs, the luxury watch brands have long been disappointed that they are forced to compromise quality on some of their regular models. A consumer preference for white has traditionally had to be satisfied with white gold or “or-gris” (grey gold) as they call it.

Using an alloy which has to be rhodium plated to achieve a satisfactory colour and therefore prone to wear is clearly incongruous with the concept of a luxury brand and the watch companies have begun to look at palladium as an alternative.

In its refined state palladium would be too soft for jewellery but adding just 5% of other elements produces hard wearing, 95% pure alloys, ideal for jewellery and watches. These additions do not diminish its whiteness, however, and when polished palladium has an innate lustre that needs no rhodium plating.

The relative lightness of the metal also permits trendy larger designs to be produced.

All of these properties are attractive to the Swiss watch companies but the icing on the cake has to be that palladium is a precious metal in its own right – and has a hallmark in Switzerland to prove it. In just the last year Cartier, Parmigiani, Ulysse Nardin and Chopard have all added palladium models to their range with more watch brands lining up to follow suit.

Platinum and palladium – the price differential

With interest in palladium jewellery being partly influenced by its comparatively low price it is interesting to compare it with that of platinum over the last ten years. Palladiums drastically changing fortunes need some explanation however.

With adequate palladium supplies in the mid 1990's the metal typically traded at a significant discount to platinum but by the end of the decade demand was on the increase, driven mainly by tighter emission control on hydrocarbons for which palladium catalysts are especially good. Concurrently disruption in supplies from Russia caused concern among auto companies. They began to add strategic stocks to their usual purchase quantities which, with market shortages, pushed palladium prices to record levels, and a significant premium to platinum.

By late 2000, however, palladium's supply demand picture had changed dramatically. Auto companies embarked on significant thrifting programs and the electronics industry reduced their dependence on palladium with a change to capacitor technology which used base metals. Meanwhile the Russians were trying to sell their excess palladium inventory to take advantage of the price levels.

With lower demand and over supply being compounded by the sell off of strategic stocks palladium's price plummeted to a low of $160 per oz. Despite a comparatively modest recovery in 2005, supported by the Funds and the emerging palladium jewellery sector in China, the price remains at a significant discount to platinum.

In Greek mythology Pallas was the companion of Athene, the goddess of art and in 1803 William Hyde Wollastone named a new element he had discovered after Pallas - Palladium.

A naturally white metal, a byproduct of platinum and nickel mines (but mined in its own right at Stillwater in Montana USA , the annual world production of palladium each year is similar to that of platinum and like its sister metal has a wide range of industrial uses.

 

New from Davran

Our ‘Poker' or ‘Bridge' cufflinks and tie tacks were very well received when we launched them last month at the NEC. We are manufacturing and stocking these in brass hard gold plated as illustrated, cold cure enamelled. We are also producing them in 9ct or silver with vitreous enamel, for that special present.

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