By Michelle Smith-Exclusive to Palladium Investing NewsLook at palladium's figures and you are likely not impressed as the metal lost 20 percent of its value just last month. After stealing the show in 2010 with a 95 percent gain in value, it may seem like a fad metal whose heyday has passed. But, you may not want to be too quick to write palladium off. Auto industry improving Yes, some analysts have cut their outlook for palladium prices in 2011. James Steel, precious-metals analyst for HSBC, downgraded palladium from $825/oz to $785/oz. However, Steel is a member of the crowd expressing optimism for the metal in 2012. He believes palladium may then rise to $810/oz. Such optimism is largely based on what Johnson Matthey, a global leader in auto catalyst production, described as “clear signs the auto industry is on the front foot again.” A rise in sales has been noted in developed economies such as Canada and the EU and emerging markets are also expected to continue displaying a healthy appetite for vehicles next year. Ford, for example, is betting heavily on sales from Russia and has announced vehicles specially designed for Indian and Chinese consumers. China, according to Johnson Matthey, now has more vehicles on the road than any other country except the US and is still viewed as a growth market. Gasoline engines and emissions standards The connection between vehicle sales and palladium is important because the automotive industry consumes about 60 percent of the metal's annual supply for use in emissions systems. A report by Johnson Matthey says that in 2010 only a few auto makers still used platinum in vehicles with gasoline engines, though platinum was once the predominant metal for this purpose. Palladium is not as easily substituted in diesel emissions systems due to differences in the combustion of the fuels. But, even in diesel vehicles, an increasing amount of the palladium is being used and development efforts continue in hopes of further improving the substitution ability. Where palladium can be used as substitute, the switch is likely to be made as it is about half the price of platinum.