Palladium (2) – Further Proof the Big 3 Should Restructure

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Precious Metals

Editor’s Note: We would like to thank guest blogger Jason Busch for his kind contributions this week. Stuart and Lisa have been on the road but will be back with some international metals perspectives later this week and next week.

I’m not sure how many MetalMiner readers follow the somewhat obscure minor metal, Palladium, but a bit of a history lesson is in order to understand one of the many bad decisions the Big 3 have made over the years. First, however, it’s worth digging into where this metal is in the market today. Palladium, according to Mining Weekly could trade as low as $125/oz in the coming year it’s currently in the $200 range. Palladium demand comes from jewelers, investors as well as vehicle manufacturers, among other groups, where it is used primarily in catalytic converters. And this brings up the Big 3 connection. According to the above-linked article, “in 2008, the palladium price followed other precious metals higher, to a peak of $588/oz in March.” But it was not so long ago when Ford, worried about declining supply availability decided to corner the market and speculate in the metal, driving it above $1000/oz.

According to Wikipedia’s history of Ford’s speculative debacle, In the run up to 2000, Russian supply of palladium to the global market was repeatedly delayed and disrupted because the export quota was not granted on time, for political reasons. The ensuing market panic drove the palladium price to an all-time high of $1100 per ounce in January 2001. Around this time, the Ford Motor Company, fearing auto vehicle production disruption due to a possible palladium shortage, stockpiled large amounts of the metal purchased near the price high. When prices fell in early 2001, Ford lost nearly 1 billion.”

Since when were automakers speculators? Depending on your perspective, this is further proof that Ford and its Detroit brethren should not qualify for banking bailouts. After all, what’s so different from palladium than CDOs from an investment perspective? Or, if you put on your pragmatic hat, it further solidifies the fact that the Big 3 has a history of chasing good shareholder money after bad. If you believe this latter argument, is evidence that it’s time to let the invisible hand pluck the Big 3 off the highway — at least in their current iteration.

Jason Busch is the editor of the blog Spend Matters

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