A Fresh Look at Palladium : Will Jewellers – and Consumers – take a Shine to Palladium?

But driven by recently mounting platinum prices, some Chinese manufacturers last year sought an alternative. Of course, there was white gold – but consumers there prefer a pure metal rather than a cocktail. Why not try palladium? Its higher profit margins made jewellers happy, but for the experiment to really take off, the consumer had to come onboard, and perhaps not only in China. Frank McAllister, chairman and CEO of Stillwater, the only significant primary producer of palladium in the Western Hemisphere, sees a shining future in jewellery.

Apart from $600, what’s the real difference between platinum and palladium?

[Frank McAllister] In terms of appearance, I’ve heard palladium described as having a greyish tone, which is very annoying. It’s actually whiter than platinum. Of course, in China, you don’t see either metal when you look at a piece of jewellery. All white jewellery – including white gold – is plated with rhodium to give it a uniform appearance. But in fact, the two metals don’t feel the same: palladium does weigh less. To be precise, it’s 44% lighter than platinum and 38% lighter than gold. However, that’s not a drawback – it’s a selling point. It’s more comfortable to wear, especially in earrings or larger rings and necklaces, but not so light that it feels like aluminium – it’s got enough weight to feel comfortable without being heavy.

And it gives the wearer options. If you buy palladium, it doesn’t mean that you’d never wear platinum jewellery again. You might save the platinum jewellery for a special occasion, but you’ll wear the palladium jewellery all day, every day.

Palladium doesn’t oxidise at room temperature – only when it’s annealed. It doesn’t need to be polished as often. And it has a double cost advantage: not only is it cheaper than its rivals, but the manufacturer uses less metal in making the piece.

The platinum campaign showed that Chinese consumers preferred a pure, white metal. That gave a logical basis for introducing palladium to that market. How would you say the experiment has worked?

To a certain extent, we did benefit from platinum’s marketing campaign. Basically, the same principles apply – at a quarter of the price, and that was what opened the door. If manufacturers switched to palladium, they could have margins of 20 to 25%.

Last summer I visited Hong Kong and Shenzhen to meet with a few manufacturers. At that point, perhaps up to 30 had made the change in Shenzhen, depending on who you spoke with. One said he thought it was a ‘cheap metal’, but later produced three trays of palladium pieces that had come from his platinum supplier. Another took me to visit his factory where palladium pieces were produced. These were destined for the southern Chinese provinces – they wouldn’t really appeal to western tastes.

So now it’s one year later. How are things going in China?

I’ve not been able to get there myself so far this year, though someone from our company has gone recently. Since last year’s spike in consumption was driven by manufacturers, the next step is to see whether consumers really start to buy. There are some encouraging signs, though palladium jewellery is not yet on offer in the larger stores. We need for that to happen to gain momentum.

But a problem is that there is still a tax on palladium going into the country. Some of the supplies are probably entering by alternative methods rather than official channels. If the SGE were to offer a contract in palladium, that might help towards getting the tax removed.

Perhaps 700,000 ounces went into China last year. If we matched that level this year, it would be a very good sign, but that would only happen if Chinese consumers accept it, want it, ask for it. If consumption levels increased even slightly, then we’d really know that the experiment had worked.

Incidentally, there’s further potential for growth in Chinese demand from their automotive market, which is growing by leaps and bounds. Last year they built five million cars; this year it will be six million and by 2010 it’s expected to reach ten million. Their emission standards are not as strict as in the West, but ultimately, they will want to export, and then they’ll have to meet world standards.

If palladium jewellery is to become accepted and desired, it will need marketing. Where’s the marketing force going to come from? And are you only looking at China, or do you see potential in any other markets?

We are taking some steps on a small scale on our own trying to form partnerships with the manufacturers who produce and sell, mostly in China, but also in the US. Japan might represent another interesting opportunity.

One example in the US is Elichai Fowler, who’s based in Bozeman, Montana [see “Never a Dull Moment” below]. We’ve featured some of his work in our annual report.

On a bigger scale, Frederick Goldman Inc, a New York jewellery company, will be introducing the ‘Stillwater Collection’ of palladium wedding bands, at the Las Vegas JCK jewellery show for the trade in June. They tell us they are already getting a good response from jewellers. We also keep in touch with Mehdi Barkhordar at PAMP, who produced a palladium medallion watch for Stillwater two years ago. Mehdi is advancing his sophisticated marketing concept in promoting a charm, the ‘FORS talisman’, made from palladium [see photos].

We’ve also collaborated on a website – www.stillwaterpalladium.com – with information about the various uses of palladium. We hope to eventually offer products for sale, from jewellery to cowboy belt buckles.

Realistically, we can’t afford to compete with the multi-millions that have gone into marketing platinum. We’re not going to be booking Maggie Chung just yet. But I have got a slogan: It’s white. It’s light. It’s bright. Most importantly, it’s a lifestyle.

What has been the response in South Africa and Russia?

Norilsk is supportive but hasn’t yet made any contributions. We understand that they have independently been pursuing a similar effort. Likewise, we’ve got general support from the South African producers, but I don’t expect them to join in a marketing effort – at least not yet.

Of course, while palladium has benefited from the price differential, platinum has suffered – and two-thirds of the South Africans’ production is platinum. They have invested both financially and emotionally into growing the platinum market. So, their encouragement is based on the promotion of palladium as an alternative, not a substitute.

Palladium jewellery could really be marketed two ways: as a more affordable alternative to platinum – or as a metal in its own right. What do you think is the best way forward?

In industrial applications, a low price can give one metal a clear advantage. With gold above $400, platinum around $800 and palladium near $200, there is a good environment for some interesting new applications, such as SED televisions, a new technology for large flat-panel displays.

Price was the catalyst that got things started for us in jewellery. It is a factor. It gave us an opening in China. In fact, it appears it was why QVC offered palladium in the US: get the look for less.

But the real key to jewellery is emotion, not price. If we’re going to create a lasting market for palladium, it has to be seen by the consumer as an option that he wants, not a substitute for something he can’t afford.

Right - Universe, one of a series of FORS talismans developed by PAMP SA in 999.5 palladium. The metal is given a matt finish and inscribed on one side with PAMP’s emblem, Fortuna, and on the other side with a motto in nine languages. The range is designed to be worn by men or women and will be launched in the near future. Why the choice of palladium? The metal’s namesake – the palladium of ancient Greek myth – was associated with luck and divine protection.