Palladium: Going, going, gone.

For years palladium has been dependent upon stockpile selling to keep supply in line with demand.  Russian government stockpiles have been virtually sold off and private stockpiles by the Russian nickel miner Norilsk Nickel are winding down.  Also, palladium is a byproduct of nickel mining.  A downturn in nickel prices and lowered production will lower the production of palladium.  


Combine supply constraints with increasing demand from investment as several palladium ETF's have widely available.  The US mint is now planning to offer Pd bullion coins taking more off the market.  Barring a global slowdown demand for catalytists used in automobiles and increased investment demand the picture for Pd has looked this good since it rallied past platinum.  


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Russia's MMC Norilsk Nickel, the world's largest palladium producer, will sharply cut sales from its stockpile in the next two years before ending them altogether in 2014, a company executive said Thursday.

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• The stockpile has supplied about 15 percent of global demand for palladium, which is used in vehicle catalytic converters, for the last 40 years.

Anton Berlin, Norilsk Nickel's marketing director, told participants at the ETF Securities Annual Precious Metals Conference 2011 that palladium sales this year from the company's stockpile will be about 850,000 ounces.During 2012 and 2013 the publicly held company, which is also the world's biggest nickel producer, will sell a total of some 300,000 ounces of palladium, after which its stockpile will be depleted, he said.This year Norilsk Nickel expects to produce 2.7 million ounces of palladium, about 2.8 percent less than it produced in 2010.
In a recent FT article, Johnson Matthey forecast that palladium would trade at an average of $650 per ounce over the next six months, and platinum to trade at $1650 per ounce during the same time period. Russian agency Gokhran, the body in charge of selling Russia’s infamous palladium stockpiles, announced they would drastically reduce stockpile sales to 145,000 ounces next year – a more than 400 percent decrease – according to the article. In the short term, however, investors have been selling off; physical palladium ETFs will sell 215,000 net ounces of palladium, whereas they bought 1.1 million ounces last year.
The authorizing legislation for the American Palladium Eagle provides instructions for specific obverse and reverse designs to be used. Both are the work of the famous sculptor Adolph Alexander Weinman. “Close likenesses” of the designs he created for a coin and medal are required to be used for the palladium bullion and collector coins.
The obverse of the Palladium Eagle will feature a high relief version of the Mercury Dime obverse. This series was produced from 1916 to 1945 and represents one of Weinman’s most remembered works.The full head of Liberty is pictured, facing left. She wears a winged cap, which makes her appearance reminiscent of Mercury, the Roman god of trade profit and commerce. This led to the use of the common name “Mercury Dime” over the more accurate “Winged Liberty Dime”. The inscription “Liberty” appears above, with the letters widely spaced. The motto “In God We Trust” appears before the front of Liberty’s neck.
The reverse of the Palladium Eagle will be a high relief version of the 1907 American Institute of Architects Gold Medal reverse. Weinman had designed the medal with help from Charles McKim and George B. Post for the first year of the important architectural honor.
A standing American Eagle with upraised wings is pictured pulling a laurel branch out of a rock with its beak. On the original medal, the rock included “AIA” and the name of the architect being honored. These inscriptions would presumably be removed for the new bullion and collectors coins. The design bears similarities to the reverse of the Walking Liberty Half Dollar, which was designed by Weinman for the circulating half dollar issued from 1916 to 1945.
A main purpose of the new bullion product is to offer a fourth precious metal option to the American Eagle line-up which currently consists of silver, gold and platinum. The addition of coins would theoretically reduce the intense Silver Eagle demand placed on the United States Mint as palladium's market price is in the range between gold and silver.
"A one-troy ounce palladium coin would offer the precious metals investor an interesting price point for market entry," Michael Clark, Diamond State Depository President, testified July 20, 2010, before the House Subcommittee on Domestic Monetary Policy. "We do believe it is an ideal price-point for many investors," added Clark. "As a result of producing a palladium coin, we believe it would have the effect of reducing the burden on the Mint for Silver Eagle production."
For 2010, palladium is averaging over $500 an ounce whereas gold and silver are at $1200-plus and $19-plus, respectively. Each of the American Palladium Eagle coins will have a denomination of $25 and contain one ounce of .9995 palladium.
Public Law 111-303 throws in a new twist for the collector proof and uncirculated versions, dictating that the numismatic pieces feature varying "surface treatments" each year. The United States Mint must produce the proof versions at West Point, but it is allowed to select where to strike the other two coins.
The law also requires that the Palladium Eagles be composed of palladium mined in the U.S. or its territories. Stillwater Mine in Montana is the only American location where palladium is mined.