Electronics Sector Shuns Palladium for Nickel
iwon.com|technology|08-18-2001::11:50|reuters,00.html
August 18, 2001 11:43 am EST
By Kate Haywood
LONDON (Reuters) - Palladium was once the metal industry couldn't get enough of and prices soared. Now with manufacturers favoring cheaper alternatives, it is falling victim to its own success.
Until five years ago the electronics sector was the largest buyer of palladium, consuming one third of overall demand -- but palladium's role in the sector is at risk as the industry looks to substitute it with nickel and copper.
"Palladium's uses -- in electronics -- are particularly vulnerable to the economy and the price has become so expensive that some buyers have started substituting the metal with cheaper options," said a trader.
Palladium soared to an all-time high of $1,090 a troy ounce at its peak six months ago, which cooled demand and subsequently sent prices back to 18-month lows below $450 an ounce currently.
Five years ago, more than 85 percent of the palladium used in electronics was made into some 250 billion multi-layer ceramic capacitors (MLCCs) for mobile phones and high-tech equipment, such as fax machines.
In 2000, industry data shows the number of MLCCs using palladium has declined, with more manufacturers using cheaper nickel instead.
The car industry, which uses palladium to cleanse exhaust fumes in catalysts, has displaced the electronics sector as the chief buyer for palladium as it struggles to meet ever tighter environmental standards.
By 1999, it provided 60 percent of demand for the metal, while the electronic sector had slipped to 21 percent even though its use of palladium and its sister-metal platinum has increased over the last 15 years.
ENTER NICKEL AND BASE METAL ELECTRODES
Base metal electrodes (BMEs), using nickel and silver, were first developed in Japan in the 1930s, but it was the aftermath of the 1997 delays in shipments from top palladium producer Russia which really set the ball for nickel substitutes and BMEs rolling. The grade of nickel used in BMEs is said to be under $5,300 a ton, down from an all time high of $10,000 a ton in 2000, compared to around $442.00 a troy ounce for palladium, which began its dizzying climb on the Russian supply disruption.
Japan's Murata Manufacturing (6981.OS), a leading MLCC producer, already substitutes palladium with nickel in the majority of its products. Other major electronic companies, including Japanese high-tech components maker AVX Kyocera (6971.T), have introduced nickel as a replacement for palladium.
"Palladium is only used in a proportion of our business. In MLCCs in particular, nickel is easier to work with as there is less metal migration...we have converted approximately 70 percent of that business away from palladium," AVX's chief financial officer Kurt Cummings told Reuters.
Demand from the electronics sector fell to some 500,000 ounces in 2000 compared with more than 1,000,000 ounces in 1997. Demand for nickel has risen sharply from less than 500,000 ounces in 1997 to more than 1,000,000 ounces in 2000.
Royal Philips Electronics (PHG.AS) is said to be paving the way in Europe, while the leading mobile phone manufacturer Nokia (NOK1V.HE), has also taken steps to replace palladium in its products. "We are looking into ways of replacing palladium with cheaper options," said a spokesman for Nokia in Finland.
These examples are typical of an industry-wide trend. "We have recorded a noticeable decline in palladium patents in the electronics sector over the last five years," analyst Ross Norman said in an article for Commodities Now magazine.
Overall, industry experts estimate that over 50 percent of MLCCs now use nickel substitutes. Last year the proportion of MLCCs using palladium fell by 18 percent dropping to just 46 percent from 62 percent in 1999.
UNCERTAIN FUTURE
The balance of demand for palladium in electronics over the next few years is cautious. Experts argue that nickel's popularity, induced by a rising demand for MLCCs and a need to ensure production is not hit by palladium costs, could leave palladium lagging even further behind over the next couple of years.
They estimate that nickel demand could touch 3,000,000 ounces in 2003, compared to less than 500,000 million ounces for palladium. "It could reach a plateau of about 250,000 to 350,000 later in the decade," Norman said.
A report by Canaccord Capital (ACA.TO) suggests demand for platinum group metals could slip a further five percent during 2001, clocking annual rises of only 2.5 percent until 2005, mainly on the back of an expected slowdown in mobile phone production.
Despite slowing demand and price volatility, Cummings maintains that palladium still has a place in the electronics world, although its usage will continue to be curtailed. "Palladium won't disappear altogether, but the amounts have been cut," said Cummings. |
