Palladium is a good substitute for platinum in many industrial applications, especially since platinum is currently much more expensive. In 2000 and 2001 palladium became more expensive so many auto makers and other users switched their processes to use platinum instead of palladium, leading to a sharp decline the demand and price for palladium. Auto makers use PGMs in autocatalysts to meet clean air regulations.
Palladium has risen in recent months to about $210 an ounce, in anticipation that the wide price spread between palladium and platinum will narrow.
Here are some articles that discuss the increased demand due to the palladium/platinum price spread:
SouthernEra confident over palladium
Hopes of palladium recovery rise with
industrial demand
Palladium soars as GM news drives
demand
In the past 11 years, this chart shows that platinum has traded at an average of $450.04 and palladium has traded at an average of $286.90. That is, on average, one ounce of platinum has bought 1.57 ounces of palladium. As of October 3rd, 2003, platinum traded at $714 and palladium traded at $208. Therefore for palladium to trade at its historic platinum/palladium ratio, it would have to go up to $714/1.57 = $455. In addition, the overall demand for the PGMs looks positive due to stricter clean air regulations around the world and potential new industrial applications such as fuel cells, suggesting that the price of the PGMs as a group could go even higher. Due to the discount relative to its peers, Palladium looks like the best value of the PGMs right now.