Commodity Trading Palladium – a rare useful metal

In its simplest form, successful commodity trading requires extensive knowledge and understanding of the supply and demand cycles of the commodity in question.  As mentioned in a previous article, it also requires excellent, trustworthy contacts, an intimate knowledge of all the parties in the supply chain and the ability to judge the markets accurately.  It is very easy to make serious, life-changing losses in commodity trading, because costs and profits can change so very quickly.  In some cases price movements of a single commodity can have an influence way beyond the initial commodity trade.

A classic example of high-risk commodity trades due to fast moving price changes are the “precious metals”- a phrase which usually refers to Gold, Silver, Platinum and Palladium.

The first three require no introduction.  They have been sold, brought and transported extensively, especially Gold, for thousands of years and today are traded in specialist markets such as the London Bullion Market, the New York Mercantile Exchange (NYMEX) and the Tokyo Commodity Exchange (TOCOM).

They are known as the “precious metals” because they are rare, difficult and expensive to obtain, but nevertheless widely desired for a number of different reasons. They also vary in price.  For purposes of comparison only and as an example, on 23rd May 2013, Gold was c. US$1391.80/ounce, Silver was US$ 22.508/ounce, Platinum was US$ 1457.20/ounce and Palladium was US$ 738.65/ounce.  A word of warning. These prices change consistently, both up and down, on a daily basis.  The word usually used is volatile.

Especially with respect to Gold, which is often viewed as “the mad metal.”  There are a number of factors which must be considered when trading in Gold.  Prices are volatile and often perceptions of value can be wrong.  The advice given is to watch gold prices in real time, all the time.  Gold is not a stable store of value because its price is dictated by supply and demand.  However, Gold is a commodity with an actual as opposed to a notional value.  Physically it is easy to ship, it maintains its physical integrity over time, it is not easily manufactured or produced artificially and it cannot be fabricated.

Yet, although highly desired in various industries such as jewellery and certain industrial applications, Gold also acts as a historical refuge for currency speculators and as an alternative currency in times of economic instability. (Interesting statistic – since 2008, the price of Gold has risen 58% in value).

Gold is mined worldwide, but the quality of the source and the ratio of gold ore to the surrounding substrata varies tremendously.  There are just under 100 countries in the world that have one gold mine or more, but 8 of these countries (Australia, Canada, China, Indonesia, Peru, Russia, South Africa and the USA) produce 2/3 of the total global gold output per year.  (It is estimated that the present total global mining of gold consists of a cube measuring 4.3 metres on each side and weighing 1,555,210 kgs every year).

The remaining 90 countries, with their less productive mines, together produce just under 100 tonnes of gold per year.  (It is estimated by the GFMS (Gold Fields Mineral Service) that as of 2011 a total of 171,300 tonnes of gold had been mined in the total of human history.) Platinum is even scarcer.  Only 3.6 million troy ounces of Platinum is mined each year.  All the platinum in the world would fit into a cube that is 6.3 metres on each side.

So why is Palladium traded as a “precious metal” with Gold, Silver and Platinum? To start with, it is 30 times rarer than Gold and is one of the Platinum group metals (PGM).  The others metals in this group, apart from Platinum, are rhodium, ruthenium, iridium and osmium and are not rare enough to be traded as a “precious metal”.  All the PGM have similar chemical properties, but Palladium has the lowest melting point and is the least dense.  Its chemical symbol is PD and its atomic number is 46.  In appearance it is a lustrous silvery white metal.

Palladium occurs naturally with Platinum, especially in Gold, Nickel and Copper ores and is both rare and difficult to extract.  It is calculated that Palladium occupies 1-10 parts of a million of the Earth’s crust.  It is one of the 10 most rarest elements ever discovered on earth.  In 2004 only 6.8 million ounces of Palladium were mined compared to 79.2 million ounces of Gold and 620 million ounces of Silver.  Only Platinum is rarer.  Palladium is presently found and mined in the Transvaal Basin in South Africa, the Stillwater Complex in Montana, USA, the Thunder Bay District of Ontario in Canada and the Novilsk Complex in Russia.  80% of the world’s supply of Palladium comes from Russia and South Africa.  (It is also produced in nuclear fusion reactors and can be extracted from spent nuclear fuel, but in very insignificant quantities).

Palladium was only discovered in 1803, when the scientific ability to distinguish between it and Platinum had developed technologically.  So, unlike Gold, it has no real history of desire.  What it does have today is a rapidly expanding itinerary of technological and industrial uses due to its ability to withstand corrosion and oxidation (it will not react with acids at room temperature) and especially its ability to absorb up to 900 times its own volume in hydrogen at room temperature and atmospheric pressure.  It acts as a natural filter for hydrogen which is invaluable in applications which require purified hydrogen gas.  Depending on the metallurgic method used, Palladium can become soft and malleable or extremely hard and strong.

The first industrial use of Palladium was in dentistry, and is still used today in the manufacture of bridges and dental crowns.  In Japan there is a specific government mandate stating that all government subsidised dental alloys have to include a Palladium content of at least 20%.

It is used in alloys as an effective and durable alternative to gold, coating products such as surgical instruments, non-magnetic watch parts and electronic components.  Its excellent conductivity properties and chemical stability means it is heavily used in electronic circuitry, multi-layered ceramic capacitors and hybrid integrated circuits.  Palladium is important in the refining of nitric acid and plays a significant part in the production of synthetic rubber and nylon.  It is a critical catalyst in the manufacture of polyester and in petroleum refining.  It has been linked to the production of very long life batteries and there are hints Palladium might play a part in cold fusion energy.

It is also used in jewellery, both in its own right (on 1st June 2010 the UK introduced a compulsory hallmark for Palladium) and as an alloy with gold for making white gold.  The other white gold alloys include nickel and silver, but Palladium white gold is the most expensive.  It was first used in jewellery in 1939 and is 12.6% harder and whiter in colour than Platinum.  (A hint from Hoover and Strong on how to identify which precious white metal your jewellery is made of.  A drop of iodine on platinum will remain clear in colour, on Palladium will turn black and on white gold will turn brown).

Yet, it is its ability to filter hydrogen and act as a purification system which is where Palladium is most valuable.  It can catalyse CO into CO2 in air purification panels and can store hydrogen in a Palladium bed (at room temperature and atmospheric pressure) instead inside a highly pressurised tank. It is particularly valuable in fuel cell technology.  Fuel cells perform best when hydrogen fuel is free of impurities.  Using a Palladium membrane hydrogen purifier, pressurised hydrogen is diffused across the P-membrane (only hydrogen has the ability to diffuse through Palladium).  By using pure hydrogen, the anode catalyst in fuel cells is stopped from being poisoned by trace impurities. (Information from Eric England website).

However, the biggest application of Palladium is for use in catalytic converters in vehicles.  Catalytic converters effectively succeed in eliminating over 90% of harmful emissions (hydrocarbons, carbon monoxide, nitrogen dioxide) by converting them into nitrogen, carbon dioxide and water vapour.  In 2011, 67% of Palladium was used in this application alone and the demand is intensifying worldwide for a number of reasons.

Originally automobile catalytic converters used Platinum, which is still has superior natural catalytic advantages, but it was then discovered that Palladium could also be utilised in this application.  Since Palladium is less expensive than Platinum, there was a price-driven substitution of Palladium for Platinum in first gasoline and then diesel catalytic converter applications.  However, this demand has increased even more due to expanding automobile production and ever-more stringent governmental emission regulations.  It is estimated that 95 million vehicles will be manufactured in 2015 and given a cumulative annual growth rate (CAGR) of 4%, it is believed that this figure will rise to 140 million vehicles in 2025.

It is this demand for Palladium in catalytic converters that caused a number of organisations to make serious losses at the beginning of the 21st Century.  For a number of decades Russia had been mining Palladian as part of their Nickel mining operations in the Ural Mountains.  They had stockpiled a large amount and this was the source of much of the Palladium supplied in the 1990s.  However, in 2000 the Russian supply of Palladium was delayed because the export quota was not granted in time for political reasons.  This led to a number of car manufacturers panic buying.  In January 2002 the Ford Motor Company announced a net loss of US$ 5.5 billion for their fiscal year 2001.  Ford had purchased Palladium during that  year at over US$ 1000 per ounce and then, when the supply issues were resolved, the price of Palladium dropped to US$ 400 per ounce.  Ford lost almost US$ 1 billion on that transaction alone and this contributed to, amongst other things, closures of plants and job losses.  Even today, because of the importance of catalytic converters to the automobile industry, movements on the price of Palladium may influence the stock prices of car manufacturers.

This is, for the foreseeable future, due to continue.  Gasoline engines, which make up 77% of the total automobiles manufactured, are due to dominate the marketplace until 2025.  Palladium is extensively used in gasoline catalytic converters.  Although Platinum is still used in diesel catalytic converters, there have been technological advances where Palladium is able to be substituted to some extent for Platinum here as well.  Hybrids, which presently make up 3% of the market are expected to gain market share, but with vehicles which include a conventional gasoline engine with catalytic converter as well.  Battery technology is still in its infancy, as are Natural Gas vehicles, but in the later technology the heavy catalysts required to control unburned methane emissions from natural gas is a Palladium technology.

However, before anyone goes off to buy Palladium, please note one important factor.  All of the above industries mentioned in this article are aware that Palladium is a scarce resource and one which cannot easily be supplied and may, over time, increase in price.  But this increase could cause the industries concerned to lose viability due to extreme costs.  So it follows that alternative technologies using other, less expensive, commodities are being researched all the time.  Remember, with all commodities, prices can go down as well as up.

Maria Narancic from Point to Point Export Services is an independent international trade adviser who assists organisations world wide with their international trade projects, documentation, Documentary Credits and import/export training.  She is based in the United Kingdom.  If you require any further assistance with the matters mentioned above, please do contact us by e-mail on info@point-point.com or check out our other articles on the Point to Point Export Services website at www.point-point.com

 

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