Palladium Futures Trading
Investing in Palladium
Platinum and palladium are the most widely used of the six platinum group metals (PGMs), which also includes rhodium, ruthenium, osmium, and iridium. They are especially valued for their catalytic functions, their conductivity, and their resistance to corrosion. They are essential in key manufacturing processes in the automobile, chemical, petroleum refining, pharmaceutical, and electronics industries.
Many of the comments about platinum also apply to palladium. However, palladium does not have as high a profile as gold or platinum, and palladium prices are considerably lower than gold or platinum, which may give it a competitive advantage in some cases.
Palladium Futures Prices & Rates
As with the other precious metals, the New York Mercantile Exchange (NYMEX) is the world's premiere exchange dealing in palladium and platinum futures contracts.
- The size of the palladium futures contract is 100 troy ounces. Palladium futures prices are quoted in U.S. dollars and cents with a minimum price fluctuation of $0.05 per troy ounce or $5 per contract.
- Trading is conducted over 15 months, beginning with the current month and the next two consecutive months before moving into the quarterly cycle of March, June, September, and December.
Palladium Traders have another possible way to take advantage of fluctuations in palladium prices is with a London exchange-traded fund (PHPD) or with another London-traded ETF (PHPP) that provides exposure to all four metals, gold, silver, platinum and palladium.
Palladium Trading Supply
Palladium is mined with platinum and resembles it in many respects, but there are some important differences between the two metals. Palladium is also produced as a byproduct of nickel mining. Russia supplies about 65% of the worlds production, South Africa produces most of the rest, with North America providing about 8%. Annual palladium production runs approximately 8 million ounces.
Russia has generally kept the market well supplied with palladium. However, the flow of palladium supplies has been erratic at times, adding further constraints into the supply chain. Some believe that Russian supplies are starting to run out, others think that officials may be controlling the flow to keep supplies tight so that a sense of scarcity will help push palladium prices higher. In any case, with the government keeping a tight rein on supplies, Russia needs to be considered a rather fickle palladium supplier.
In South Africa, labor issues and problems with generating sufficient electrical power to operate mining facilities at capacity can have an impact on palladium production. With a tight supply-demand balance, disruptions in palladium output or shipments can have price consequences, sometimes occurring as sharp, brief spikes based on concerns that the flow of palladium could be curtailed.
How to Invest in Palladium
The most obvious tip for palladium traders is to watch platinum fundamentals and price movements closely. Whatever affects platinum is likely to also have an effect on palladium prices.
Perhaps a better strategy is to follow prices of both metals, as well as gold, and trade spread relationships. A factor that sends precious metals prices higher is likely to cause a bigger move in platinum than in palladium prices. When the price gap between the two widens to high levels, sell platinum and buy palladium; when the price spread shrinks to low levels, buy platinum and sell palladium, expecting a breakout higher in metals prices to send platinum prices on a bigger run.
Palladium Trading Demand
Automotive catalytic converters are the largest palladium consuming sector, accounting for nearly two-thirds of palladium consumption. Electronic equipment accounts for about 20% of usage; dental alloys, 12%; and jewelry, 4%.