A Russian State Secret May Push Palladium’s Price To $1,000

Oct 21, 2010


Yesterday I wrote about a UBS analyst note that said palladium would reach $703 by 2013, and that if certain conditions are in place the precious metal could hit $1,000 or more.

Well, one of those conditions could be met fairly soon.

Palladium is up 38% since January. The metal is used in automobiles, dvd players, iPods, laptops and other electronics.

More than 80% of world’s palladium production comes from two countries: the Russian Federation and South Africa.

Russia built a massive stockpile of palladium over a number of years when the metal wasn’t being used very much. Now though, the metal is widely used in cars—vehicle manufacturers account for half the world’s palladium consumption.

It’s also found in cell phones, LCD TVs, laptops, iPods, and DVD players.

UBS analysts say cars will be the new mobile phones in China in terms of consumer consumption in the next 10 years. The number of drivers in China is doubling every four years currently.

Good news for Russia, right? Not really. There’s word that the country’s stockpile is dwindling to levels well below what will be necessary to keep up with potential demand. Russian stockpiles supplied over 10% of the world’s palladium output last year.

To make matters more complicated, exact figures on the Russian stockpile of palladium are unknown because the country keeps them a state secret. Very convenient. 

On October 8, Norilsk said that it expects the Russian stock pile to be finished this year and that it anticipates no deliveries in 2011.

“If so, this will mark a considerable decline in palladium supply and the market will be minus the 1 million ounces which has been the annual norm over the past two years. Thus a sizeable deficit looms if correct,” a UBS note says.

Further, if the stock pile does dry up, the analysts say their 2012 forecast of $700 per ounce will be too modest. The drop in Russian supply could push the price of palladium to $1,000.

Palladium reached $602.50 per ounce in early October- the highest price since 2001.

“The industry is buzzing about gold and silver, but palladium, which is part of the platinum group metals, has appreciated the most of any precious metal this year. This often forgotten precious metal is up an extraordinary 38 percent since January. Of all of the precious metals, palladium is the least known but possibly has the greatest profit potential,” says Greg Marshall president and CEO of Global Asset Management.


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