Frank McAllister, CEO of Stillwater Mining (NYSE:SWC), would call palladium a Cinderella Metal. I agree with him not only on the reasons he cited but more importantly because palladium (Pd) really is a very romantic fairy tale metal that breaks several known physics laws, literally. I am not a crackpot theorist trying to overthrow modern science. Let me explain why palladium defied several physics laws.
First, palladium defies the oldest known physics law, Isaac Newton's gravity law. The Russians have accumulated a large strategic stockpile of palladium since the Soviet Era; they have been selling off the stockpile ever since the late 90s. In 2000, a rumor that the Russians may stop the government sale caused a global market panic and drove the price up to $1100 a troy ounce. In the chaos, Ford (NYSE:F) and GM (NYSE:GM) purchased large amount of palladium right at the top of the price. The Russians promptly resumed export of the stockpile palladium. The global market was flooded with a huge surplus of palladium supply, and the price collapsed, forcing Ford to write down a $1B loss as a result. The price bottomed in 2003 at $142. It's the law of gravity in the economy of supply and demand: When something is over-supplied, the price has to fall.
The Russians continued to sell about 2 million ounces from the stockpile per year, on top of mine production. Global mine production was roughly 7 million ounces a year. So the total supply was about 9 million ounces while demand was only 7 million ounces. So in a huge surplus situation, the gravity law says the price must continue to fall. That was the conclusion of Allan Williamson in 2003. He was non-reservedly pessimistic in prediction that palladium price should continue to fall, due to continuing massive oversupply condition.
But palladium defied gravity and rallied off the $142 bottom of 2003, pushed toward $400 and proved Allan Williamson as well as all other metal analysts wrong. Why was it so? It really shocked me and forced me to research why it defied gravity, and I found many good reasons why. One of the reasons is, as shown on this futures chart, palladium open interest dramatically increased starting in the middle of 2003. Some strong hands started to hoard all the excessive palladium because they saw some huge potential in the future. These are not speculators. They have a firm belief in palladium's future, and have been driving price up in the past few years. One of the potential is increased demand of palladium used in jewelry, like in China. But it's way much more than that. I also came to realize that the Russian stockpile is not an infinite supply. It will come to an end. We will then see a structural deficit in palladium.
Palladium's many emerging usages relate to the fact that it defies another physics law. It is a solid metal, but it absorbs hydrogen gas, and lots of it. Palladium can absorb up to 900 times its own volume of hydrogen. It also absorbs deuterium, a heavier form of hydrogen with an extra neutron in its nucleus. Palladium's absorption of deuterium is extremely important that I will talk about later.
Since palladium absorbs hydrogen, that makes it very useful. Like platinum, it can be used as a catalyst in many important industry chemical reactions, like oil refinery and fertilizer production, synthetic fiber etc. It is most widely used in autocatalysts to reduce air pollution.
Palladium is also used in hydrogen purification. Both platinum and palladium can be used as a catalyst in fuel cell batteries, a red hot industry sector being developed. There are already hydrogen fuel cell vehicles being driven on American roads, and hydrogen refueling stations in New York and Shanghai. Commercial hydrogen fuel cell vehicles will come to the mass market next year. There are also miniature fuel cell batteries, called Direct Methanol Fuel Cell [DMFC], being developed for mobile electronics, like cell phones, laptop computers and digital cameras, providing extremely long lasting battery power;such consumer fuel cell devices will also go to the mass market beginning next year. This will be a great hit because who wouldn't want a cell phone that does not need recharging overnight? See the Fuel Cell Today web site for lots and lots of exciting news stories about fuel cell, and Platinum Today for any news related to PGM metals.
The point is all fuel cells must consume PGM metals as catalyst. So that will be a booming demand to drive PGM metal prices to crazily high levels, which will definitely help the stock prices of North American Palladium (NYSEMKT:PAL) in the long term.
Coincidentally, the middle of 2003 was a pivotal point for SWC and palladium. Palladium price bottomed in mid 2003 and rallied strongly up, defying gravity. Strong hand investors suddenly become interested in palladium in 2003, and open interest in the futures market boomed. Russian Norilsk acquired 54% stake in SWC, with the blessing of the Bush administration, thus dominating more than 50% of the global palladium market, and Mr. Craig Fuller, former White House Chief of Staff to the senior President Bush, was elected to the Board of Directors of SWC. Also in that year, President Bush started to pitch hydrogen economy to the nation, and tried to get America weaned off of dependency on Middle-East oil. r.
There was also another coincidence in the year 2003 that few people, except maybe the palladium strong hand, noticed; there were experimental breakthroughs reported in the field of Cold Fusion, a 1989 science discovery that was too quick to be denounced as science hoax and be dismissed. The repeatable new experiments re-ignited the science community's renewed interests in Cold Fusion. The research activities boomed.
That brings us to the last and most shocking deed of our fairy tale metal, palladium in totally defying the ultimate physics law, the modern quantum mechanics and nuclear physics. The textbook of physics says that nuclear fusion, where two deuterons fuse into one helium nucleus, releasing tremendous energy doing so, could not happen at room temperature, because the positively charged deuterons will expel each other. You must pack the deuterons to high density and raise to extremely high temperature and let the nuclei smash into each other at high speed in order to fuse them together against the Coulumb Barrier. How could it be possible at room temperature?
But palladium defied the known physics and proved scientists wrong. Palladium absorbs 900 times its own volume worth of deuterium. When driven by an electric current, the heavily packed deuterium atoms within palladium, with the catalyst of the palladium crystal lattice, was able to fuse and release huge amount of energy. The experiments were done, repeatedly, by the US NAVY researchers and hundreds of other research groups worldwide. Excessive heat and energy was measured, helium was detected, neutron release detected and some experimental instruments blew up, a successful failure that proved there's huge energy released. There are also amazing YouTube videos showing the effect of cold fusion. See the video series The War Against Cold Fusion, part 1, part 2, part 3, part 4 and part 5. Read all about cold fusion on LENR-CANR web and on New Energy Times.
The business of science is that when experiments are done, repeatedly, defying the theory, it must be accepted as real science and the theorists must scratch their heads to come up with some new physics to explain the experiments. Beginning in 2007, the American Physical Society conducted dedicated Cold Fusion sessions in their March Meetings. They will continue to have Cold Fusion sessions again in March 2008. Cold Fusion is gaining footstand and is being accepted by the main stream scientific community as a legitimate science.
It's relevant because cold fusion must use palladium. A success soon in commercial cold fusion products, as claimed by private companies like D2Fusion, or by a Russian scientist, will provide humanity with virtually inexhaustible new energy from the ocean water, and overcome the Peak Oil Crisis altogether. But it will also drive the palladium price to an unimaginably high level. A residential cold fusion device of the size of a washer machine, containing just 1/10 of an ounce of palladium, will provide your whole family's energy need for the life of the house and you never have to pay for electricity, natural gas or winter heating ever again. How much are you are going to pay for it? I am willing to pay $100K for that device containing 1/10 ounces of palladium. That figures to a palladium price of ONE THOUSAND TIMES the current gold price.
You would be very glad that you have hoarded some palladium. You would be even happier that you invested in PGM producers SWC and PAL if cold fusion happens. You would, however, regret that you invested in high flying solar companies like First Solar (NASDAQ:FSLR), which uses an extremely rare metal tellurium to make solar panels; the business will probably break down due to a tellurium shortage crisis. You would also regret that you followed the mob and invested into expensive and red hot solar players like Akeena Solar (AKNS), Applied Materials (NASDAQ:AMAT), Ascent Solar (NASDAQ:ASTI), BTU International (NASDAQ:BTUI), Canadian Solar (NASDAQ:CSIQ), China SunEnergy (NASDAQ:CSUN), DayStar (OTCPK:DSTI), Evergreen Solar (ESLR), Hoku Scientific (HOKU), JA Solar (NASDAQ:JASO), LDK Solar (NYSE:LDK), SolarFun (SOLF), SunPower (NASDAQ:SPWR), SunTech Power (NYSE:STP), Trina Solar (NYSE:TSL), MEMC Electronic Materials (WFR) and Yingli Green Energy (NYSE:YGE), a whole bunch of names which were once hot, but are going nowhere selling expensive solar panels when governments cut down spending and eliminate solar subsidies. If you were chasing those fly fliers you may have missed the real alternative energy gems, SWC and PAL. Frankly, the whole solar energy sector will not provide us much energy, and will become obsolete when we have virtually inexhaustible cold fusion energy.
So if you are really interested in an alternative energy play, the absolutely unbeatable future winners will be the little heard about SWC and PAL, due to fuel cell technology and cold fusion development. I would suggest buying these two stocks while they are dirt cheap. I often like to compare SWC in 2007 to Southern Copper Corporation (PCU) in 2003. PCU was barely profitable in 2003 and the stock was flat for 8 years, but it was the best time to get into PCU as it was poised to go on an incredible rally on the copper bull.
You also need to contact your Congressional Representatives and Senators, and the President. Urge them to fund and support the cold fusion research and speed up the adaptation of a hydrogen economy, and wean us of the dependency on fossil fuel. Cold Fusion is the best and last hope we have to acquire an abundant alternative energy source to replace the quickly depleting fossil fuels, saving us from the Peak Oil Collapse. For the sake of humanity's future, and of course for the sake of our own prosperity for those of us invested in SWC/PAL, we'd better hope that Cold Fusion will be a beautiful dream come true!
Palladium is really a magical and romantic fairy tale Cinderella Metal which humanity cannot live without. It works silently in the catalyst converters of our cars to reduce air pollution; it works in water treatment factories to clean our ground water to save our environment; it provides fuel cells so we can drive pollution free, high energy efficient hydrogen fuel cell cars; it may also provide cold fusion energy to replace our fossil fuel energy sources. It's nature's best gift to the human race. We should cherish it.
This Thanksgiving, I had a lot to be thankful for; high on that list is the existence of this magic metal, and for that I finally learned the facts about the metal, 18 years after I first heard about Cold Fusion in 1989. I am thankful that America is still the world's best country and I wish our prosperity will continue into the future.
Full disclosure: I am heavily invested in SWC and PAL, and I have short positions in FSLR and may also short other over-priced solar players. I hoard palladium metal and tellurium metal.