Palladium prices have recently gone through the roof, surpassing platinum and forcing many to use it as a more affordable alternative. What forces are at work behind these price spikes and what can investors, collectors and industrialists expect going forward?

The Importance Of Palladium

Palladium is mainly used for catalytic converters, but as with other precious metals it is diverse and also used for jewelry, dentistry, in the manufacture of watches, spark plugs for airplanes, electrical contacts and various surgical devices. It is also important within electronics, especially for capacitors which are multilayer ceramic. Palladium is excellent for electrodes, and may sometimes be used with nickel as an alloy. It appears frequently with soldering materials and annually the electronics industry consumes over thirty tones of the metal.

As with gold, platinum and silver, new uses are being discovered for palladium all the time. Researchers have discovered that when palladium is heated, hydrogen will diffuse through it easily, and as such the metal is frequently used within electrodes that have palladium/hydrogen. Dentists sometimes use palladium alloys for amalgams which reduce corrosion while boosting metallic luster for the restoration once it is finalized. While Palladium doesn’t get the same attention that gold, platinum and silver gets for jewelry, this is changing rapidly. For jewelry such as rings it can be used as a platinum alternative, in an alloy which is referred to as white gold, where its white coloration doesn’t need rhodium plates. Palladium also has lower density than platinum and like gold may be pounded into a leaf which is about 100 nm thin. However, the disadvantage of palladium is that it is somewhat brittle and will discolor at temperatures higher than 400 degrees Celsius whereas platinum won’t.

Factors Behind Rising Prices

The cost of an ounce of palladium recently broke the $1600 mark, surpassing both gold and platinum. The high prices are largely the result of supply shortages. The market for this metal is therefore very tight, with Russia considering placing restrictions on scrap exports. In the past, Russian restrictions on palladium due to political reasons have proven disastrous to manufacturers who depend on it, with Ford losing about $1 billion in 2001 due to a similar incident. Like platinum, palladium is crucial within the automotive industry as it is used in numerous parts. However, palladium has surpassed platinum to a certain degree since platinum was more popular in diesel based vehicles which are no longer as popular due to the emissions scandal that has plagued Volkswagen.

Another factor which has influenced prices is the decision of China to enforce their stimulus measures in an attempt to boost their own economy, which also happens to be the world’s largest car market. It is very likely that both Chinese and other countries will begin using platinum as a substitute for palladium, at least until prices fall, which presents an investment opportunity for those currently holding both physical platinum and related stocks.