Why North American Palladium's Fallen Down in 2012

As we approach the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at North American Palladium (NYSE: PAL). The miner is one of just two producers of palladium, which is a precious metal used primarily in catalytic converters for vehicles, as well as jewelry use, in North America. But the stock has suffered from recent weakness in the palladium market. Let's take a quick look at how the stock is doing so far this year.

Stats on North American Palladium

Source: S&P Capital IQ.

Why is North American Palladium losing in 2012?
North American Palladium has had a tough time of it for a while now. In 2011, steadily dropping palladium prices helped contribute to a 65% fall for the stock. Because North American Palladium's production costs are fairly high, the company is especially vulnerable to lower bullion prices, and even minimal further declines over the past six months have exacerbated the problem and sent the stock to levels it hasn't seen since the depths of the financial crisis three years ago. Moreover, its Vezza gold mine, which is scheduled to start commercial production at the end of the month, faces falling gold prices as well.

Improving economic conditions for automakers were supposed to boost demand for palladium. But even though Ford (NYSE: F) and General Motors (NYSE: GM) are both holding up reasonably well, they're facing big challenges in the European market. Moreover, they'll be reluctant to make the same mistake that Ford did more than a decade ago, when Ford locked in palladium supply at extremely high levels only to see prices sink to less than a third of their current value.

Rival Stillwater Mining (NYSE: SWC) is seeing many of the same challenges, but it at least remains solidly profitable. North American Palladium needs to see its expansion efforts at its primary Lac des Iles palladium mine pay off, along with success at Vezza. The stock has plenty of room to run to the upside if it can get things going for it again.

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