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Autocatalytic Events Affecting Palladium
1950s automobile exhaust identified as a major contributor to smog in urban air.
1965 The US Clean Air Act mandates control of tailpipe emssions from 1968 and later automobiles.
1970 The US Environmental Protection Agency is established, and Clean Air Act revised with much lower emission limits. Lead is to be phased out of automobile gasoline.
early 1970s PGM based autocatalysts are developed to reduce hydrocarbon and carbon monoxide emissions. PGM technology developed to control NOx emissions.
1974 First mass produced cars fitted with catalytic converters are available. Middle East Oil Embargo begins.
1976 Japan mandates vehicle emission standards that control HC, CO and NOx.
1977 US Clean Air Act further tightens emission standards starting in 1981.
1981 Autocatalysts technology has improved considerably. Three way catalytic converters with engine oxygen sensors and onboard diagnostics are introduced to meet the tougher standards which now include NOx emissions.
1980s Further improvements in materials and engineering are made in autocatylysts. Austria and Germany introduce their own emission regulations.
1990 "Tier 1" standards are introduced to the US Clean Air Act mandating further emission reductions for 1994 onward.
1991 Tougher NOx emission standards mandated by Japan.
1993 Emission regulations by the European Union require the use of catalytic converters.
1994 Tier 1 emission standards begin in the US.
1996 California emission standards require cold start emission control. Palladium determined as well-suited for that application.
1999 US National Low Emissions Vehicle standards begin, mandating substancial reductions of NOx.
2000 Catalytic substrate technology reaches capability of 900 cpsi in production models. Euro 3 regulations begin effect. Palladium supply from Russia enters difficulty, price spikes.
2004 US Tier II emissions standards begin phase in period. Further large NOx emission reduction mandated.
2008 The EU mandates Euro 4 emission standards.
2011 China adopts Euro 4 emission standards.

The sustained recovery which has given buoyancy to PGM prices since their bottoming in late 2008 has many facets. Given the severity of the 2008 economic meltdown and the depth of the corresponding downward price movement, a subsequent recovery was perhaps understandable. It was the momentum and magnitude of the subsequent recovery in PGM prices that caught some observers by surprise. Not only PGM prices and precious metal prices, but industrial metal and commodity prices in general rose markedly during 2009. Uncharacteristically, this price recovery emerged at the beginning of the current worldwide economic recovery rather than, as would be typical for commodity prices in the past, at the maturing or cresting of the economic cycle.

The doubling of the palladium price in 2010 was driven by several important factors: the continued recovery from
the steep 2008 fall in metal prices; investor demand in the U.S. and elsewhere for newly introduced palladium ETFs;
the surge in demand for automobile catalytic converters; constraints on PGM production worldwide, and very importantly also due to an emerging recognition in the market that sales from the vast Russian government palladium inventories built up during the Soviet era are either at or near exhaustion .

Headlining the 2010 developments, the price of palladium doubled in 2010 while the price of platinum rose 21%. Or, said another way, the dynamics underlying this market action – in a massive price re-rating – moved the price of palladium from 27% to 45% of the price for platinum.  This may signal the start of a fundamental shift in the relationship between these two metals.

Stillwater Mining Company believes that price equilibrium between palladium and platinum may well be measured in the future relative to parity.  Why? As technology advances, the factors supporting parity continue to build. The ability to substitute between palladium and platinum on a 1-to-1 basis in catalytic converters continues to expand.  It was first achieved in 2002 and 2003 for gasoline catalytic converters – the main market accounting for about 50% of total PGM demand.  And during 2010 it was achieved in the laboratory for that portion of a diesel catalytic converter where palladium can be substituted for platinum. (At the same time, the technology also has advanced to allow about 50% of the platinum in a typical diesel converter to be replaced with palladium – although the current average on the production line is about 20%.)  Industry analysts are projecting annual worldwide vehicle production to increase by 50% over the next decade. This dynamic implies that industrial demand, where palladium currently has the advantage, will be determining the price for the two metals .

PGM market performance throughout 2011 and into 2012 has been hindered by world events that have created volatility in the financial and metal markets alike.  After doubling during 2010, the palladium price remained strong for the first eight months of 2011, during which time it averaged $776 per ounce, before falling 16% to average $650 for the last 4 months of 2011.  In those last four months, palladium, along with metal prices across the board, fell victim to the natural, political and financial turmoil that set world markets on edge.  Thus, despite the very positive supply/demand dynamics facing palladium, market jitters resulted in a flight to cash as palladium exchange traded funds  liquidated their positions.
If other market factors remain constant, it is expected by many in the investment community that this trend will reverse as the market recognizes the longer-term supply demand fundamentals of the palladium market.

PD $ 2012


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