Palladium | Why it is the Best-Performing Commodity of the Year

Palladium has been the best-performing commodity of the year, outperforming all other typical investment products. On 20th February 2019 it surpassed the $1.500 an ounce record-high denoting an increase of 600% over the last 10 years, an approximte 45% increase year-on-year and a rallying seven-month high since August 2018 with a gain of nearly 60%. Its strong upward trend has been by far driven by the automotive industry in meeting their strict emission controls.

 

palladium price development

Palladium as an Investment Class

Palladium is a very scarce precious metal that is extracted in very small portions from polymetallic ores, such as Platinum and Nickel. Annually only around 210-220 metric tons (“mt”, according to the US Geological Survey) are produced. In 2017 the output was approximately 214mt led by the largest Palladium producers: Russia (81mt) and South Africa (78mt). The remainder was produced by mainly Canada (19mt), Zimbabwe (12mt) and the USA (13mt). 

This precious metal is used in electronic components, jewellery, and surgical instruments. Its main source of demand is however the car industry where Palladium is used in car catalytic converters to meet tightening governmental regulations in reducing the output of particle pollution and stricter vehicle testing regimes. In order to meet these regulations more petrol-driven cars are produced as opposed to diesel. The automotive industry makes up about 80% of the demand for Palladium.

Demand was further tightened after the closure of some mines at the end of 2017 and beginning of 2018. Expert analysts are expecting another 2% decrease in production in 2019, according to Metal Focus, London. No relief is currently in sight on the supply side which will continue to result in a tight market and prices trending higher.

Although the development of electric cars is going well ahead, it will still take years (minimum 5 years according to industry experts) until they could substantially start replacing conventional-fueled cars.

As seen from the above graphic, the Palladium market is highly volatile as it is less liquid. On the other hand, though, because production is dominated 80% by the automotive industry, it appears to be more predictable. Since it is mainly used for industrial purposes, it behaves much more like a commodity (as opposed to gold to which it is quite often linked) – Palladium is therefore and actually more business cycle-sensitive than gold. Palladium is also mainly produced in emerging markets which are often prone to price spikes as a result of production stoppages.

The tightening of Palladium supply has also sparked the borrowing market for this metal with investors pulling the material from ETFs (Exchange-Traded Funds) and offering them for lease.  The paper Palladium market is huge as there are only 42.000 oz on the COMEX vaults but 2,8 million oz in digital obligations.

Is it too late to invest in Palladium?

While we do not provide investment advice in whatever nature, the market situation and expectations of market experts shows that there is still room for substantial gains. This is based on the fact that Palladium demand is to 80% governed by one single industry, the automotive industry, and the fact that there is a very tight supply of Palladium production. Palladium is a hard-to-replace component in the car industry and R&D will take years to find / develop a substitute and the main competition to conventional-fueling, electronic cars, are nowhere near a level yet that they could be a proper replacement.

Why Liemeta ME Ltd?

Liemeta ME Ltd, Nicosia, Cyprus, provides physical storage of precious metals at its prime location in Liechtenstein as well as trade services of precious metals, mainly Gold, Silver, Platinum and Palladium. 

Your precious metals are safely and securely stored “segregated and allocated” and we are one of the few physical storage houses for precious metals that provide full-cover insurance including embezzlement.

Your stored asset is fully legally owned by you, client assets are of course not on our companies’ balance sheets.

We are a privately owned, independent and non-bank company, meaning that our services do not fall within the scope of CRS or AEOI.

We provide 100% discretion, 24/7 access to your stored assets at our sophisticated unit and high-security building.

You are welcome to contact us through the below contact form.

 

We do not offer investment advice:

This information is provided solely for general information and educational purposes. It is not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell.