Palladium ETF May Soon Outshine Other Metals
April 13th 2012 at 7:00am by Tom Lydon
Palladium has been underperforming for the most part of the year so far, but the precious metal and related exchange traded funds may end the year as one of the best performers on growing supply concerns and improving industrial demand.
Palladium, a close substitute for platinum and one of six platinum group metals (PGMs), has seen its prices dip from the average $730 per ounce last year to its current price of around $640.
However, Zachs Investment Research contends that palladium prices will rebound. Demand for PGMs mainly come from the auto industry, specifically for autocatalysts used to diminish harmful emissions, writes Neena Mishra for Zacks. Autocatalysts make up 55% of total demand; electronics, dentistry and chemicals make up another 25%.
Demand for PGMs are on the rise as global economies improve and automakers begin churning out more vehicles. Automakers are beginning to substitute palladium for platinum as platinum prices continue to rise – the U.S. Geological survey calculates that as much as 25% of palladium can be routinely substituted in diesel catalytic converters, and in some other applications, substitution may be as high as 50%.
On the supply side, Russia accounts for 41% of global supply and South Africa makes up 38%. Worker strikes, safety stoppages and higher production costs has dampened output from South Africa. Meanwhile, Russian palladium exports are expected to decline due to lower stockpiles.
Given the demand and supply outlook, analysts expect palladium to hit an average $850 an ounce by the third quarter, or up 32% from current prices, far higher than the average projections of 15% for gold, 13% for silver and 11% for platinum.
The ETFS Physical Palladium Shares (NYSEArca: PALL) is a physically-backed palladium ETF that tries to reflect the price of palladium bullion. The ETF has an expense ratio of 0.60%. [Sprott Files Physical Platinum and Palladium ETF]
ETFS Physical Palladium Shares
For more information on the precious metal, visit our palladium category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.