The Wall Street Journal-20080204-Is Palladium Too Plentiful to Be More Profitable-

Return to: The_Wall_Street_Journal-20080204

Is Palladium Too Plentiful to Be More Profitable?

Full Text (346  words)

Palladium has been a laggard in the rally in precious metals, but some analysts feel it may be poised for a leg higher.

In Russia, the world's biggest source of palladium, holders of the metal appear to be selling smaller amounts. But with gold and platinum at records, demand for palladium jewelry is increasing, pushing up demand for the metal overall. There also is the potential for increased demand for automobile catalytic converters.

Still, the main problem that has plagued palladium -- that annual supply exceeds demand -- means some believe palladium prices already may be lofty.

Nearby and most-active March palladium on Friday rose $22.55, or 5.7%, to $417.05 a troy ounce on the New York Mercantile Exchange, the first time a nearby contract was above $400 since May 2006.

Palladium is one of the platinum-group metals whose main industrial application is for catalytic converters. Other uses include dental crowns and bridgework, electronics and jewelry.

Spot-month palladium on the Nymex peaked at $1,090 in January 2001, during a period when bureaucratic delays by Russia held up permits that sometimes meant no shipments for weeks at a time. By April 2003, it had tumbled to $145 and has traded in the $300s since February 2006. It has risen 25% since the February 2006 high, which is tame compared with a 63% rise in gold over the past two years and a 62% gain for platinum.

Comparisons to platinum and palladium are common as both are used for catalytic converters and jewelry.

J.P. Morgan Chase & Co. said it expected palladium to underperform against platinum, especially given large above-ground palladium stocks. Palladium averaged 27% of the platinum price in 2007, compared with a long-term average of 54%.

But "steady exhaustion" of palladium stocks could boost the metal, said strategist Michael Jansen, suggesting "the real long-term palladium price" should be around $450.

Frank Holmes, chief executive of U.S. Global Investors, looks for gains in palladium on the heels of rising platinum. Any efforts by the auto sector to substitute for more-expensive platinum may further help palladium, he said.