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Benchmark and price discovery mechanism
Futures markets and contracts
Main physical markets
Palladium price links
Historic prices
Benchmark and price discovery mechanism
Palladium is mainly an industrial metal although it is considered as a precious metal. Palladium prices are mostly responsive to economic supply and demand factors as other non-precious metals. However, since palladium supply is very limited, palladium prices are much more volatile than the other industrial metals. The key factors that may influence prices are the policies in the most important producing countries, in particular, the Russian Federation and South Africa, the size and availability of the Russian palladium State stockpiles, as well as the economic situation of main consuming countries, like United States, Japan and Europe. Prices of other precious metals may also play an important role in palladium price discovery mechanism since there are some substitution effects among them.
The main reference price for palladium is the London Fix which is considered as the international benchmark. The quotation is done twice a day and it is used as a benchmark for most of the deals. The fixing is transmitted by international press agencies and it is widely followed by industrialists and producers all around the world.
The fixing procedure is simple: at the beginning of each session, the
chairman announces an opening price to members' dealing room, which
is then transmitted to members' customers. When the dealers receive
the orders from their customers, members declare themselves as a buyer
or a seller and state the amount in which they wish to trade. If the
amounts do not balance, prices are adjusted upwards or downwards and
the process is repeated. The Fixing price would be the one at which
all orders are cleared. The chairman declares when it occurs. Settlement
shall be made two business days after the date of the contract.
However, a number of palladium users are attempting to buy the product directly from the few producers in the world, bypassing metals exchanges. Norilsk Nickel, the major palladium mining company, is also trying to establish long term contracts directly with customers.
In fact, due to the dominance of the Russian Federation over palladium supply, not only through Norilsk Nickel production but also through State stockpiles sales, this country acts as a price maker in the market.
Platinum futures and options are primarily traded in:
NEW YORK MERCANTILE EXCHANGE (NYMEX): http://www.nymex.com
TOKYO COMMODITY EXCHANGE (TOCOM): http://www.tocom.or.jp
For information purposes only, specifications of NYMEX and TOCOM contracts at the beginning of 2001 are listed bellow. However, specifications are subject to change. Updated contracts may be directly consulted in the above mentioned addresses.
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NYMEX Palladium Contract Specifications Trading Unit Trading Hours Trading Months Price Quotation Price changes are in multiples of $0.05 (5¢) per troy ounce
Maximum Daily Limit Last Trading Day Delivery Grade Delivery Inspection Packing Grade and Quality Specifications Position Limits Margin Requirements Trading Symbols |
The main physical market is the London Platinum and Palladium Market:
The London Platinum and Palladium Market was established in 1987 with the purpose of formalizing the informal trade that had taken place on an over-the-counter basis for many years. London Platinum and Palladium quotations were expanded and upgraded to full Fixings in 1989. Leading organizations in platinum group metals are represented in this market.
Palladium market making members quote buying and selling prices for spot delivery. The movements of these prices respond to supply, making the price discovery mechanism more transparent. Trading takes place during London and Zurich working hours.
Deliveries normally take place at a vault specified by the member unless both parties agree on other arrangements. Forward prices are also quoted for specific maturity dates so that producers and industrial consumers have the possibility to hedge. The London/Zurich Good Delivery List is a list of acceptable Melters and Assayers maintained by the Market in order to facilitate trading.
The use of this market is less important for palladium than for platinum since the major producer company Norilsk Nickel intends to enter into long term contracts with customers. Therefore the amount of palladium available for spot delivery is quite limited.
South African Chamber of Mines: http://www.bullion.org.za/
Kitco, Inc.: http://www.kitco.com/market
A-Mark Precious Metals: http://www.amark.com
Alaron Trading: http://www.alaron.com/
Johnson Matthey's Platinum Today: http://www.platinum.matthey.com/prices/index.html
US Geological Survey: http://minerals.usgs.gov/minerals/pubs/commodity/platinum
Reuters: http://www.reuters.com
The Bullion Desk: http://www.thebulliondesk.com
The Mining Web: http://www.theminingweb.com
Metalprices.com: http://www.metalprices.com
Quoteline: http://www.quoteline.com/
Commodity Library: http://commodities.thefinancials.com
Palladium prices (US$ per oz), from 1968 until 2006
Source: UNCTAD based on data from Johnson Matthey's Platinum Report
The graph above shows palladium's prices volatility, which is related at the same time to the fundamentals of the economy for its industrial application and to the market law for its precious metal function. Thus, during the 1998-2004 period the palladium volatility ( which is a relevant index of prices' instability ) reach 23.4 %. Meanwhile, on the same period ( represented on the graph below ) platinum and gold bullion volatilities were only about 12.2 % for platinum and 3.1 % for gold bullion. In the first quarter of 2001, palladium price climbed to its historical top concerning the 1990-2004 period at 1090 US $ per oz, but on the 25th of april 2003 the palladium price was about 142 US $ per oz. This means that the palladium price dropped by 87 % in thirty months.
Palladium prices compared to others precious metals
(US$ per oz),
from 1987 to 2007
Source: UNCTAD based on data from Datastream
In spite of the obvious difference in the palladium price level compared to the platinum one, this situation will not last long. According to recent events some major changes will appears in the platinoïds market. As a matter of fact, Umicore sets up a new technology that could provide a larger use of the palladium in diesel catalyst converter. This technology advanced would surely jeopardize the monopolistic position of the platinum in catalyst, which was usually the main metal used for sulphur polluting particles.
In consequence, the platinoïds market terms should change in favour of the palladium. A part of the demand for platinum should be to transfer to palladium as far as diesel catalysts are concerned. This tendency should be strengthen by the increasing sales of diesel vehicles in Europe. This should lead to a convergence trend of both palladium and platinum prices for a constant level of supply.
Volatility or price instability index
The volatility of the prices is represented here by the percentage of deviation of the variables compared to the trend of exponential tendency for a given period. This index of instability is calculated according to :
Where Y(t) is the observed value of the variable
y(t) is the estimated value by adjustment to the exponential trend of
the observed values and n is the observation numbers of the sample.
