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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (24558)	11/21/2009 10:58:36 AM
From: ayn rand	Respond to of 71479

Russia: Palladium Tactics Losing Their Luster November 7, 2001 \| 0600 GMT i hope this helps: Summary Russia is withdrawing its palladium supplies from the global market in yet another attempt to trigger a price spike. Although Moscow should be able to raise prices, the global slowdown, the technology bust and replacement technologies will prevent this attempt from being as successful as in years past. Analysis Deputy Finance Minister Valery Rudakov announced Nov. 1 that Russia would withdraw its palladium supplies from the global market for at least the rest of the year. As the world’s primary supplier of palladium — a valuable metal used primarily for catalytic converters and high-end electronics — Russia has often forced the market up in order to maximize its own revenues. This time, however, the global situation is different. Moscow will be able to engineer a price hike only after a sustained cutoff. A prolonged palladium revenue gap would be somewhat harmful for Russia’s economy. But it is Japan — because of its deepening economic slump and its heavy reliance on the automotive and advanced electronics industries — that will suffer disproportionately from the eventual rise in price. Industry analysts generally agree that Russia controls about 70 percent of global palladium production and its Finance Ministry controls distribution. With this monopoly, Moscow has been able to manipulate the metals markets to keep prices high. Russia hit the apex of its market power in January 2001, when prices per ounce briefly brushed $1,100. Since then, demand from palladium’s two biggest customer industries — automobiles and technology — has shrunk, leading to consecutive monthly price declines. The metal currently sells for $324 per ounce. Russia, which controls 80 percent of global reserves, is once again withdrawing supplies but will prove unable to reproduce the quick price spikes it has in the past, for several reasons. First, a global recession is rapidly taking hold, with manufacturing and technology goods harder hit than the general economy. That, combined with overproduction in many Asian states, will keep palladium demand weak for months. Second, companies that use palladium sought alternatives after prices peaked in January. Palladium can be swapped relatively easily for its sister metals, platinum and rhodium. Although these materials are also expensive, Russia is not the primary supplier, and the prices of both are at relative lows. Third, new technologies are emerging that require less palladium. In March, Honda announced it would begin using a new type of catalytic converter that uses less than half the normal amount of the platinum group metals. The first production model to use the new converter, the Step Wagon, has already proven to be one of the four most popular models in Japan, according to the Japan Automobile Dealers Association. The new technology is also catching on with other companies. Catalytic Solutions, which developed the new converter for Honda, entered into a strategic alliance in May with McLaren Performance Technologies, a Detroit-based engineering applications company that does work for Daimler-Chrysler and Cadillac, among others. These factors will force Russia to refrain from selling palladium abroad until demand picks back up, perhaps not until the end of 2002. That will translate into a minor hit on the Russian budget because selling government palladium stocks is a quick and easy method of raising emergency cash. The only Russian company to suffer will be Norilsk Nickel, which mines nearly all of the country’s palladium and nickel. Norilsk had hoped to make $2 billion this year from platinum group metals, but its income will most likely fall below expectations and could well be gutted next year as commodity prices in general plummet in reaction to the deepening global recession. Most palladium consumers, buoyed by low inflation, should be able to absorb the higher prices once the Russian action takes effect. The one exception may be Japan. The Japanese economy is stuck in a rut; the nation’s central bank predicts recession and deflation at least through March 2003. Some companies, such as Honda, have been shrewd enough to pre-empt the palladium problem. But as Japan’s deflation deepens, most will lack the cash to develop new technologies. Higher palladium prices will be one more cross for their fragile finances to bear.