By Michael Johnston

Palladium is an extremely rare element that was first discovered in the early 19th century. Despite a relatively short history, palladium and other platinum group metals (which include platinum, rhodium, iridium, osmium and ruthenium) are used widely today. By some estimates, one in four products either contains a platinum group metal or uses one in the manufacturing process. Palladium, like platinum, is used widely in the manufacture of catalytic converters, creating a link between the price of the metal and the health of the global auto industry. As such, palladium as an investment vehicle has characteristics of both industrial metals such as copper and precious metals such as gold. There are a number of different options for investing in palladium, including exchange-traded futures contracts, stocks of companies engaged in the extraction and sale of the metal, and exchange-traded products.

Physical Properties and Uses of Palladium

Palladium has the lowest melting point and lowest density of the PGMs, and about half of the worlds palladium is ultimately used in catalytic converters. Those devices are responsible for converting hydrocarbons and carbon monoxide from automobile emissions into carbon dioxide, water vapor and other non-harmful forms.

In addition to its use in catalytic converters, palladium is used in a number of electronic products, including computers, cell phones and LCD televisions. Palladium also has applications in the fields of dentistry, medicine, photography and groundwater treatment. Like platinum, palladium is also used as a precious metal; in jewelry, it is often an alternative to silver or white gold. In recent years, use of palladium in jewelry has become much more common due to a jump in the price of platinum and technological advancements that have addressed certain manufacturing hurdles. China in particular has emerged as a major driver of demand for palladium jewelry.

Palladium Supply and Demand

Palladium is extremely rare; annual global production is approximately 200,000 ounces. Palladium deposits are spread throughout the globe, but there are only a handful of known reserves of significant size. Those include deposits in South Africa, Montana (United States), Ontario (Canada) and Russia.

South Africa and Russia have historically accounted for the majority of global palladium mining, and South Africa is home to a significant portion of known PGM reserves. The United States and Canada are also major palladium mining locations, though the U.S. has historically been a major palladium importer. As recently as 2008, the U.S. relied on imports for close to 80% of palladium consumption; that figure has declined to about 60% in recent years.

The concentration of both reserves and mining output in two emerging markets can have obvious ramifications on the price of the metal, especially considering that supply disruptions in the form of mine strikes, natural disasters or other occurrences are not uncommon.

2009 Production