Palladium has strong fundamentals, but poor market sentiment is overshadowing them.

By Leia Michele Toovey- Exclusive to Palladium Investing News

Palladium is just another metal that is having a bad year, and according to an industry report things will not be looking up anytime soon.

With bleak economic prospects on the horizon, over the next six months, prices of precious metal palladium will likely be near 12-year lows of $125 an ounce. The world’s top platinum refiner Johnson Matthey estimated in an interim review that the palladium market would be in surplus by 320,000 ounces this year compared with a surplus of 1.655 million in 2007.  It expects prices to range between $125 and $300 an ounce over the six month period. Matthey believes that the outlook for palladium in certain applications, such as catalysts is positive; however deteriorating economic conditions around the globe continue to impact price. Palladium is backed by strong fundamentals, and when we see stabilization in the economy the metal will be poised to take off.

Johnson Mathey launched the Krasnoyarsk plant in June to supply catalytic converters to car makers in Russia, which this year emerged as Europe’s largest automobile market. “According to our business plan, it will take from 18 months to two years to reach full capacity,” Mikhail Piskulov, the company’s General Manager told reporters. Russia is the world’s largest producer of palladium, a precious metal used in vehicle exhaust systems, jewelery, electronics and the chemical industry. Johnson Matthey built the $12 million auto catalyst plant on land adjacent to precious metals refiner Krastsvetmet, which will supply palladium and rhodium. Each catalytic converter needs about one gram of precious metals. Running at full capacity, the plant would therefore require about 1,000 kg of precious metals annually. Demand for palladium and rhodium has been boosted worldwide by tighter regulations on carbon emissions from vehicle exhausts.

A second-half slowdown in the U.S. and European automotive sectors was offset by new legislation demanding Euro V standards on vehicle emissions. By 2010 or 2012, production could reach between 3 million and 5 million, making Johnson Matthey’s share of the catalytic converter market anywhere between one-third and one-fifth when running at full capacity.

North American Palladium Ltd. (TSX: PDL), Canada’s largest primary palladium producer has announced the much anticipated financial results for their third quarter of 2008. “The unprecedented speed and magnitude of the decline in metal prices resulted in a significant loss for the Company in the third quarter” said William Biggar, President and CEO. “As previously announced on October 21, 2008, we have put our ‘Lac des Iles’ mine on a care and maintenance basis until metal prices improve. In the interim, we will utilize our strong balance sheet to focus on exploration around the mine site and elsewhere on our 21,000 acre property, as well as strategic initiatives including acquisitions and joint ventures.” The company was pleased to report that it remains in a strong liquidity position.  Working capital was $105.5 million at September 30, 2008, including cash and cash equivalents of $66.4 million. At the end of the third quarter 2008, long-term debt was $1.9 million. Total revenue (before pricing adjustments) was $35.3 million for the third quarter of 2008, a decrease of $7.3 million (17 per cent) compared to the same period last year. Mark-to-market pricing and foreign currency adjustments amounted to negative $44.2 million due to a rapidly declining commodity price during the quarter. Revenue after pricing adjustments was negative $8.9 million. Palladium sales for the third quarter of 2008 were recognized for accounting purposes at US$199 per ounce, a 42 per cent decrease compared to US$344 per ounce in the same period last year. Loss from mining operations for the quarter ended September 30, 2008 was $66.0 million compared to a loss of $10.2 million in the same period last year. This loss includes the $44.2 million in pricing adjustments, as well as a $5.6 million write-down of ore and concentrate inventories due to the decline in commodity prices. Net loss for the quarter ended September 30, 2008 was $71.2 million or $0.85 per share compared to a net loss of $14.0 million or $0.25 per share in the third quarter last year.

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