Palladium is that Pt-group metal of largest production (although notably in some South African mines, the production of Pt predominates). About six million ounces of Pd are mined each year, with mining capacity currently and contemplatively in increase, because of the giant price rises. The largest producer of Pd is Norilsk Nickel, which produces very roughly one-half of the world's supply as a by-product from its nickel mine in northern Siberia. The only U.S. producer, and indeed the only large mine which produces primarily palladium, is Stillwater Mining, in Montana.

For many years (since about 1965), Norilsk produced more Pd than could be used, and the excess went into a secret government stash, which at one point reached probably about twenty to thirty million ounces. While the Pd was in considerable excess supply, the price fluctuated at about $100 to $150 per ounce, quite a bit lower than that of gold and platinum.

Palladium has had several specialized uses (none very large), such as dental construction, electronic resistors, catalysts for various chemical applications, and even jewelry. (Pd has been used in Japan as a cheaper substitute for Pt in jewelry and the preferred 18K white gold is 25% Pd.)

Several years ago, a giant new use developed for Pd, which has changed everything. It was decided that autos had to clean up their exhaust gases, notably in unburned hydrocarbons, which cause smog and pollution. The easiest way to do this was with Pt-group metal catalytic converters, the most effective of which is Pd bearing. Thus, each car uses about one-fifth of an ounce of Pd. This market has grown rapidly over the last few years and now used very nearly all Pd mined each year. Until about the first of this year, the Russians had been supplying the difference between Pd demand (now about eight to nine million ounces) and Pd production (about five to six million ounces) from their stash. But supplies from that stash have now apparently about dried up. The Pd price rose above $250 per ounce in about April 1998, above $400 about last November, and is now about $700 an ounce, having briefly gone above $800 in late February.

The situation existing today is that auto emissions catalysts use up almost all of the mined Pd, and that demand is even still growing. There is no Pd left for the other users. The auto companies can afford a still much higher price in order to sell autos, so a bidding war for Pd has erupted. A price well above $1000 per ounce looms in the near future, and the price to be reached later this year could easily (but probably temporarily) be in the thousands of dollars, rather than hundreds of dollars, per ounce. The price on the commodity exchange is extremely volatile, with a recent short squeeze apparently having taken place, followed by exchange-forced liquidation of long positions. This market action has been mind boggling.

The only realistic long-term solution is a replacement of Pd auto emission catalysts, and other Pt-group metal catalysts (Pt, Rh, etc.) cannot suffice, because they are in even shorter supply. We will have to see and use lighter autos, smaller engines, intrinsically cleaner engines, etc. Pd is much too valuable in other very important catalytic applications to be wasted in controlling auto emissions, which can be otherwise controlled. [Editor's Note: These "other very important catalytic application" are none other than catalytic fusion processes. --EFM]

In late February, the Tokyo Commodity Exchange issued a rather confusing order attempting to set the price of Pd at just about $700 per ounce. Since then, the price worldwide has indeed stabilized at that point. If the price continues to stay there, obviously something is going on. One possible explanation is that the Russians, who have been threatening imminent exports, have indeed sent some quantity to Tokyo, under an agreement that all sales will be at $700. This would translate into a big profit for the Russians (and also Stillwater Mining), would supply the market at a steady (though very high) price, and allow the Japanese a small profit while keeping their auto industry at work and exporting. Such an agreement could stay valid only as long as the supply satisfies the market demand, probably for a few weeks to a few months.

Obviously, if the price remains pegged, it is not a time to be playing the futures market for swings, and I contemplate getting out.