Belonging to the platinum group of metals, around 80% of the world’s palladium production comes from two countries: Russia and South Africa. In fact, Russia alone accounts for roughly half of the world’s production, which is estimated to be 200,000 ounces per year. This can create cause for concern as any decrease in exports from these countries can contribute to volatility in palladium prices.

In comparison to platinum, palladium shares similar chemical properties but is less dense and has a lower melting point.

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Uses of Palladium 252520-%252520Dentistry_thumb.jpg?imgmax=800 /% With this in mind, it is important to take a look at the various uses of the metal. The unique composition of palladium makes it ideal for the auto industry, dentistry, electronics and fuel cell production. However, the most important use of palladium by far is the auto industry. Used in catalytic converters, the auto industry accounted for over 60% of the demand in 2010. To put this in perspective,about 80 million vehicles will be produced in 2011 and on average each catalytic converter requires about 1/20th of an ounce of palladium or platinum. Jewellery and industrial use, which comprises of dentistry and electronics, are the next highest users with approximately 29 and 7% of the demand in 2010 respectively.

Supply and Demand Because Russia controls roughly 50% of the worldwide palladium pricing, and South Africa around 30%, palladium prices can be quite volatile. Between 2005 and 2011, palladium has gone from a low of about $168 per ounce to approximately $858 per ounce, settling around $630 per ounce as of Dec. 29, 2011.

Demand has also contributed to this volatility. With China’s auto industry booming this could put a strain on supplies. Furthermore, the size of Russia’s stockpile is a state secret so it is unknown how much supply they will export in future years.

Palladium Investing There are a variety of ways an investor can gain exposure to this metal, whether through physical palladium, palladium futures, palladium miners or palladium exchange-traded funds (ETFs). Many miners are engaged in mining a variety of metals however, and since palladium is so rare it only makes up a small portion of a miners output. Nevertheless there are a few pure play mining companies that an investor can invest in.

As for palladium ETFs, the ETFS Physical Palladium Shares (ARCA:PALL) holds physical palladium and moves in tandem with the market price.

Lastly, palladium futures can be used to gain exposure. They are traded on the New York Mercantile Exchange (NYMEX) and are available over 15 months, starting at the current month, then the next two following months before going onto the quarterly cycle of March, June, September and December.

Palladium Futures Contract in Detail Every commodity has its own ticker symbol, margin requirements and contract value so it is important to know how to read the ticker. Metals are traded based on margin and this rate can change based on the volatility of the market. Typically if the margin rate increases, the price of palladium will drop and vice versa. The leverage gives speculators a higher risk return investment.

Exchanges Palladium trades on the NYMEX and the Tokyo Commodities Exchange (TOCOM), each have their own contract size and minimum price fluctuation.

Change in Price Each metal has its own contract size so the change in price can differ from other metals. For palladium, every 10 cent move is equal to $5, or 100 cent move the equivalent to $50.

The Bottom Line Palladium is one of the rarest metals on earth and is often neglected in favour of its more popular brother, platinum. However because of its unique qualities it is being used more and more in the auto industry, and as it is cheaper than platinum and comes from a limited number of sources, prices should rise in tandem. With this in mind, if traders and investors want exposure to this precious metal they can start looking at specific stocks, futures and ETFs.

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