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.