By Stockpickr Staff
Posted on May 6, 2009

Commodities, from oil and copper to zinc and nickel, act as an essential barometer of global growth and provide a real-time glimpse of how the global economy is faring.

Recent action in the commodity sector has been downright bullish, suggesting that the world economies have seen the worst of the global recession and that greener pastures lie ahead.

For example, copper bottomed out in early March at $1.60 per pound, and the June HG future contract is trading at about $2.09 per pound. A critical commodity for infrastructure and housing, copper is definitely worth keeping an eye on as an indicator of global growth.

The largest copper producer in North American is Freeport-McMoRan Copper & Gold (FCX), based in Phoenix. The spot price of copper is up about 60% this year, and shares of Freeport have more than doubled. Other large copper producers include London-based Rio Tinto (RTP), which has also doubled so far this year, and Australia-based BHP Billiton (BHP), up about 19% so far this year.

Aluminum stocks are on the rise, too. Alcoa (AA), the largest publicly traded aluminum company, has more than doubled since its March 6 low, and Century Aluminum (CENX), a mid-sized aluminum producer with smelters in the U.S. and Iceland, is up a whopping 600% since it's March 9 low.

Of particular interest is North American Palladium (PAL), the largest and only producer of palladium in North and South American, accounting for 4% of the global palladium supply. The stock is up about 9% this year, currently trading at about $2.05. It's poised to be the next commodity producer to double.

North American Palladium currently has a market capitalization of $180 million, which equates to roughly $2.09 per share, but the company’s balance sheet is extremely healthy, sporting more than $1 per share in cash and no debt.

Relative to other commodities, palladium is rare, with annual global production of just 6.8 million ounces. Annual global production of gold is 90 million ounces and of sliver is more than 150 million ounces. On a production basis, palladium 75 times as rare then gold.

As of 2008, Russia was the largest producer of palladium via Norilsk Nickel, which accounted for roughly 45% of the world’s production. However, as economic and political conditions inside the country weaken, commodity companies inside Russia are being forced to close operations, particularly in the palladium space, thus creating a relatively inelastic market.

South Africa accounts for roughly 39% of the world’s production, but producers have slowed the rate of production down as new mines are shut and power issues challenge new mine developments.

When demand finally picks up, palladium prices will skyrocket.

According to CPM Group, the price of palladium will be $250 per ounce in 2009, $396 per ounce in 2010, $410 per ounce in 2011, $460 per ounce in 2012, $490 per ounce in 2013 and $510 per ounce in 2014.

More than 50% of all of the world’s palladium is used principally in catalytic converters in the automobile industry, so North American Palladium is also an indirect bullish bet on Ford (F) and the automotive market in general.

In addition, North American Palladium currently has annualized production rates of 270,000 ounces of palladium, 20,000 ounces of platinum and 20,000 ounces of gold, so it's a play on platinum and gold as well.

As the global economy finally improves, commodity stocks in general will lead the advance higher as both global growth and global inflation act as the principal catalysts to move the sector higher. North American Palladium is a clear winner in the space.