The apparently inexorable rise in the palladium price came to a halt in the second week of November, after peaking at a record 1,804 per ounce on 28 October. Since then, the metal has given up more than US$100 per ounce, although analysts are divided as to where it will go next.
Most chartists seem to see a bullish trend developing, whereas those looking at market fundamentals continue to remain bullish.
And certainly, the case for a renewed upward push remains very strong, given the supply constraints surrounding the metal and ongoing high demand.
As the most expensive of all the precious metals, palladium occupies a unique niche. Although it can be mined as a primary metal, it comes more frequently as a by-product of Platinum mining, and supply is thus to a significant extent dependent on platinum output.
And, with platinum prices at a ten year low, the supply of palladium as a by-product has consequently been constrained, to the point where the metal has been in deficit since 2012.
This supply constraint has been matched by increased demand from automobile manufacturers, since palladium is a key component in the catalytic converters used by gasoline engines to clear emissions of their most toxic elements.
Platinum is widely used in catalytic converters for diesel cars, but since the European emissions scandals in the earlier part of this decade, sales of diesel cars, and consequently demand for platinum, have slowed.
Despite hopes that electric cars will come to the fore, thus far the slack has been taken up almost entirely by gasoline-powered engines, where the use of palladium is preferred over platinum. What’s more, emissions regulations are becoming more robust, especially in jurisdictions like China, which means the catalytic converters in turn have to be that much more efficient. It all adds up to increased demand for palladium.
And, while there is some talk of substitution, there’s no real sign of that happening yet. Johnson Matthey, a key player in the technological deployment of platinum group metals, said recently that further technological advances would be needed before platinum could be used to swap out the pricier palladium component of catalytic converters.
From the perspective of the car manufacturers the increased price is an irritant. However, the amount of palladium used in each catalytic converter is relatively small, so to some extent they are able to absorb the cost. And that dynamic also implies that substitution is some way away.
In the meantime though, those with palladium assets are making hay. Palladium One Mining (CVE: PDM) revealed this week that it’s raising up to C$3.2mln, primarily for exploration on its palladium-dominant LK project in central Finland. That’s a small sum in itself, but it’s interesting to see who the cornerstone investor is: none other than Eric Sprott, perhaps the biggest name in the Canadian mining investment scene.
Not to be outdone, Robert Friedland, probably the most famous mining promoter in the entire industry, recently revealed the positive impact stronger palladium prices were having on the valuation of the Platreef PGM project controlled by his company Ivanhoe.
Elsewhere, early in October South Africa’s Impala Platinum Holdings Ltd, otherwise known as Implats (JSE:IMP) announced the acquisition of one of the few major palladium companies based outside of South Africa or Russia, North American Palladium Ltd. The deal was priced atC$758mln.
And junior miner Eurasia Mining (LON:EUA), which has a palladium asset in Russia as well as cash-producing platinum operation, has been the subject of frenzied buying in recent weeks, as the share price has soared from just under 0.5p to a current price of 2.75p. That’s been good for the company, since every single warrant holder under the sun has exercised, bringing in much-needed cash at a time of wider dearth in the mining industry, and prompting Eurasia publicly to state that no fund-raisings are anticipated in the foreseeable future.
The speculation is that a major buyer is circling the palladium asset. But we will just have to wait and see.