Russian State Secret May Push Palladium to $1,000

Source: Forbes, Halah Touryalai (10/21/10)

"Russian palladium stockpile may be finished this year."

More than 80% of world's palladium production comes from two countries: the Russian Federation and South Africa.

Russia built a massive stockpile of palladium over a number of years when the metal wasn't being used very much. Now, the metal is widely used tin cars-vehicles manufacturers account for half the world's palladium consumption.

However, there's word that Russia's stockpile is dwindling to levels well below what will be necessary to keep up with potential demand. Russian stockpiles supplied over 10% of the world's palladium output last year.

To make matters more complicated, exact figures on the Russian stockpile of palladium are unknown because the country keeps them a state secret.

On October 8, Norilsk said that it expects the Russian stockpile to be finished this year and that it anticipates no deliveries in 2011.

"If so, this will mark a considerable decline in palladium supply and the market will be minus the 1 million ounces which has been the annual norm over the past two years. Thus a sizeable deficit looms if correct," a UBS note says.

Further, if the stockpile does dry up, the analysts say their 2012 forecast of $700 per ounce will be too modest. The drop in Russian supply could push the price of palladium to $1,000.

Palladium reached $602.50 per ounce in early October—the highest price since 2001.

"The industry is buzzing about gold and silver, but palladium, which is part of the platinum group metals, has appreciated the most of any precious metal this year. This often forgotten precious metal is up an extraordinary 38% since January. Of all of the precious metals, palladium is the least known but possibly has the greatest profit potential," says Greg Marshall, president and CEO of Global Asset Management.

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