In their analysis, Stillwater noted that if the 775,000 ounces in palladium sales reportedly supplied from the dwindling Russian government stockpile are excluded from 2011 supply figures, "the share of palladium supply from primary mine production, used for catalytic converters increased from 67% to 73% from total consumption."

The white paper asserted, "Palladium is facing a substantial supply deficit going forward that will likely be met by a combination of price-driven demand destruction and shifting back to platinum or using rhodium."

"With Russian state inventories diminished, palladium supply growth extremely constrained, and demand increasing steadily, the market is expected to be under supplied going forward," the company said.

Eoin Treacy's view In much the same way that the global market is dependent on South African supplies of platinum, Russia dominates palladium supply. It's export ban in 2001 sent prices to over $1000 and its release of stocks sent them plummeting to a low of $137 by early 2003. There has been a great deal of speculation over how much metal Russia holds in reserve and its likely impact on pricing. Most reports have suggested that the country's stockpiles have been depleted considerably over the last few years.

Palladium prices have been ranging mostly below $700 for a year, encountered resistance at that level two weeks ago and pulled back sharply. While by far the most volatile of the precious metals recently, the sector's commonality is such that the most likely prognosis is for additional upside over the medium term. Stillwater Mining fell more than the palladium price in 2011 but has performed broadly in line with the metal this year.


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