Week-in-Review: Palladium is The Wind Beneath Industrial Metals’ Wings

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“Have you ever known that you’re my hero…You’re everything I wish, I could be…
I can fly higher on the LME, because you are the wind beneath my wings.”

This may have been Bette Midler singing about her then-piano player Barry Manilow – except for the London Metal Exchange part – but this was finally the week when loyal, dutiful palladium stepped out from the considerable shadow of platinum and became a precious/industrial metals star in its own right, reaching a 13-year high on the LME (an astounding $911 an ounce) and widening the gap between itself and platinum as the favorite precious metal of traders this year.

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How high has palladium soared this year? It’s leaving the eagles in its dust. It’s singing “Copacabana” in Japan, China and the US, all markets where palladium bar finished up this week. It’s causing automakers to rethink using it for catalytic converters rather than substituting CHEAPER platinum in new cars. Yes, platinum is now the metal that you use to slum it and save a few pennies when it comes cleaning the exhaust air that your car spews.

Muffler exhaust

“Don’t listen to what that grifter platinum’s trying to tell you. I’m the one who’ll keep your emissions clean. Good ol’ palladium. I’ve always been here and always will be. Stardom won’t go to my head.”

How did this happen?

How did palladium, little palladium, the most industrial of the industrial/precious metals become the big winner for both investors and gigantic auto companies trying hard to meet emissions standards? No James Bond villain has ever demanded to be paid in palladium to my knowledge. Platinum is still the precious metal used as the Recording Industry Association of America’s official attaboy for selling one million records. I have never heard Kid Rock brag about going “seven-times palladium.” Even gold, which is drifting toward bear status thanks to a strong dollar, is used in Olympic medals and records that sell a mere 500,000 copies. It used to be that the best that palladium could rate was the name of a medium-sized newspaper, yet, these days, all that glitters is palladium.

For one thing, Russia happened. Taking the Crimea back from Ukraine and generally helping separatist rebels sow unrest in the eastern part of its former republic has lots of investors testing their degree antiperspirant these days. Some would say investors are showing excessive concern and snapping up as much supply of palladium as possible coming out of the world’s number two producer, Russia, which also happens to be the eastern hemisphere’s not-so-favorite neighbor. Just ask Poland. While sanctions could, theoretically, cause limited supply from the land of Putin, overrated hockey and figure skating, there’s still the world’s number one producer to fall back on, right?

Yeah, that’s South Africa, a nation whose economy was pushed into recession this summer when a protracted platinum mining strike took up the first half of the year there. The same mines that pull platinum from the earth in South Africa usually do the same for palladium as the precious metal cousins are usually found together. The mining industry there is still trying to overcome the effects of the strike and profitability is a long way off.  Palladium is extremely rare and the strongest deposits have only been found in the countries that produce 80% of the world’s supply, Russia and South Africa, with some much smaller operations in Canada and here in the US.

There’s no reason to expect reality TV shows on American networks about out-of-work construction professionals and shady businessmen buying used equipment and “taking a roll of the dice” to go palladium exploring the way that those shows cropped up around gold in 2011 (see Gold Rush, Jungle Gold, Bering Sea Gold and my personal favorite, Bamazon). There’s just not enough of it and, let’s face it, not even wannabe reality stars want to go to Siberia. Well, okay, most of them don’t.

In addition to the bad economy and essentially crippled mining industry in South Africa, another problem for advanced exploration there is a fragile electrical power grid that makes rolling blackouts a part of everyday life.

All these factors came together to create palladium’s perfect price storm, a storm that shows no sign of letting up this year. Palladium’s earned it.

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