Throughout most of the mid 1990s palladium was trading in the $150 per ounce range. Beginning in 1997, a rise in palladium’s price was seen, no doubt due to rising demand stemming from use in autocatalysts. In 1998, some spikes occurred to above $350 per ounce. In 1999, it continued to trade in the $350 range, but began rising at year’s end.

As the year 2000 began, palladium was trading at $433. By February 24, it had shot up to $785, due in part to delivery interruptions from Russia causing a shortage. Automakers, whose manufacturing of catalytic converters depended on reliable stocks of PGMs, had concerns of their own. The major North American automakers seem to have responded to the high price of palladium by drawing down stocks built up in the preceding two years. After reaching the peak of $800 in February 2000, palladium retreated during the March to May period, perhaps raising hopes that the Russian metal would be available the rest of the year.

In the market, rumors circulated that several large traders had been caught short, and were now losing heavily as the price soared higher. Every market claims winners and losers, but in palladium, continuing losses were so widespread, and closing out positions so difficult, that many large and influential players lost big. Exchanges began to take action to limit losses.

On February 24, the Tokyo Commodities Exchange (TOCOM) abruptly froze trading for all futures contracts that year. The exchange required that all positions be liquidated, and no physical deliveries or new positions were permitted. (TOCOM complained that “unlimited acceptance of hedging positions” was the source of the recent market volatility – an unusual explanation given that hedging is a primary use of a commodities exchange.)

Many market analysts observed that TOCOM had essentially defaulted on its palladium obligations. Those who had bought palladium contracts, and intended to stand for delivery were prevented from doing so and lost money as the price began to plummet.

The palladium price dropped, as TOCOM had intended. A month later, palladium had fallen to $615. Nevertheless, persistent high demand still exerted upward pressure on the price, and the declines reversed. By August 2, palladium had risen back to $852.

The New York Mercantile Exchange now announced steps of its own. NYMEX announced a series of margin increases in its palladium contracts. Futures exchanges allow investors to trade contracts with only a small percentage of the purchase price, called purchasing on margin. Margin requirements by NYMEX for palladium contracts rose to a staggering $168,750 in order to buy or hold a $72,400 contract. (An even bigger increase to $202,500 was announced, but cancelled later.)

Russian shipments remained erratic until mid September, then saw significantly more metal available. Even so, the price continued to rise steadily. Auto companies continued purchasing metal to replenish inventory run down in the first half of the year. Palladium did decline following the margin changes and apparent increased supply. Then came the Russian announcement.

The Russian state treasury, Gokhran, indicated that no pgm would be sold in 2001, forcing automakers (and other users) to move to ensure they would have adequate stocks. The white metal rose to $956 on the last trading day of 2000. In January of 2001, palladium hit a high of $1,090.

Following the price peak, supply of palladium expanded, Russia did ship, but industry began seeking alternatives to this now very expensive metal. Soon an oversupply asserted itself on the market, resulting in a precipitous price drop while the price for platinum had seen a steady rise in both demand and price. The Ford Motor Company, in the following year, wrote off a staggering $1 billion in losses due to the loss of value of the company’s palladium purchased in fear of a shortage at high prices. Today we see an historic spread between the price of platinum and the price of palladium, with palladium the far less expensive alternative.

Palladium remains a precious metal with an extremely short list of suppliers, with two of those suppliers providing over 80% of consumption. While the market is now in a position of oversupply, many believe the current historic price difference between palladium and platinum will not be sustained.