Palladium an attractive investment: -Norilsk

LONDON Tue Mar 9, 2010 7:50am EST

LONDON (Reuters) - Palladium is an appealing investment because future jewelry and industrial demand will be strong, Norilsk Nickel (GMKN.MM), the world's largest palladium producer, told the Reuters Global Mining and Steel Summit.

"For many people it is an attractive investment opportunity because of very healthy demand," Norilsk Marketing Director Anton Berlin said in response to a question on whether volumes flowing into exchange traded commodity funds would be maintained

"Jewelry will be an important part of demand, its industrial use is diverse and sustainable," he said.

A U.S.-based subsidiary of London's ETF Securities launched a U.S.-based palladium-backed exchange traded product in early January.

ETF's Physical Palladium Shares PALL.P saw inflows of nearly 440,000 ounces in its first month of open trading -- worth nearly $200 million at today's prices -- and its holdings stood at 469,793 ounces as of last Thursday.

Investment demand helped push spot palladium to $480 an ounce late last week, its highest since March 2008 and a gain of 200 percent since December 2008, when fears of economic recession drove the price below $160 an ounce.

Palladium has also been boosted by expectations of economic recovery and worries about supplies from South Africa.

Demand has recovered because of "cash-for-clunkers" incentive schemes, initiated by some governments to boost demand and confidence.

Palladium is used to make catalytic converters that clean car emissions. Converters in gasoline driven cars have a higher proportion of palladium than those in diesel engines.

POTENTIALLY HUGE

Sister-metal platinum is also used in converters. High platinum prices have accelerated the search for technology that uses less platinum and more palladium.

"In the diesel sector, the share of palladium is increasing," Berlin said. "China and India are potentially huge markets."

Both countries have a growing middle class, which covets the luxuries of its Western counterparts.

China's passenger car sales in February jumped 55 percent from a year earlier as policy incentives lured buyers into showrooms, an official industry association said on Tuesday.

Berlin declined to forecast future palladium prices.

"We don't give forecasts, our customers don't appreciate it," he said, adding that potentially stronger Russian demand for palladium would not change the global picture.

"It's easier for Norilsk to supply domestically because of logistics. I wouldn't say it's an increase in the overall market, it's more of a shift."

Berlin said he did not know what Russian government stockpiles of palladium were, but that there were indirect indications -- about 1 million ounces or less last year compared with historical levels of about 2 to 3 million ounces."

Norilsk's 2009 full year data is not yet available.

But total metals sales revenues were $11.8 billion in 2008, down 26 percent year-on-year, due to lower prices of metals, mainly nickel, which accounts for more than half of the sales, and a decline of sales volumes.

Palladium accounted for 11 percent of this figure ($1.3 billion or 3.4 million ounces) and platinum for 12 percent ($1.4 billion or 0.9 million ounces).

Refiner Johnson Matthey estimates global palladium demand at 6.52 million ounces in 2009 and supply at 7.175 million ounces.

(Addition reporting by Jan Harvey and Aleksandras Budrys; editing by Sue Thomas)

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