The palladium-related exchange traded fund could shine this year as low gasoline prices and cheap bank loans help attract more new automobile buyers.
The ETFS Physical Palladium Shares (NYSEArca: PALL) has only increased 1.1% over the past year but could begin to pick up momentum in 2015.
The palladium spot price is hovering around $777.3 per ounce Tuesday.
Johnson Matthey Plc, a maker of catalytic converters for automobiles that uses palladium to reduce harmful emissions, projects demand for the precious metal will likely exceed supply for a fourth consecutive year in 2015, reports Laura Clarke for Bloomberg.
Fueling the increased palladium demand, global car sales increased 3.4% in 2014 to a record 81.6 million vehicles. In the U.S., U.S. auto sales rose to an annualized rate of 17.2 million, the highest since November 2003. Morgan Stanley and Deutsche Bank AG both remain bullish on the palladium outlook because 70% of palladium demand comes from car-parts manufacturers. Specifically, an ounce of palladium supplies enough catalytic converters in about 10 vehicles.
“Palladium is an exciting place to be because of its exposure to gasoline,” Scott Winship, a fund manager at Investec Asset Management, said in the article. “U.S. auto demand is incredibly strong and might even surpass previous peaks that we saw before the financial crisis.”
Bolstering U.S. auto sales, near-zero interest rates, a stronger job market and cheap fuel costs are allowing American consumers to finally purchase some big-ticket items that they pushed off in the wake of the financial crisis.
Cheaper fuel “might attract some drivers to buy a car when they otherwise wouldn’t have,” Jonathon Poskitt, the head of sales forecasting for Europe at LMC Automotive Ltd., said in the article.
However, palladium investors may be wary of prices rising too quickly. When palladium jumped to a record in 2001, carmakers cut palladium demand by 40% the following year and shifted into platinum as a cheaper alternative. [Palladium ETF Looks to Rebound]
On the supply side, production has lagged consumption since 2012, with output declining in Russia and South Africa, the world’s top producers. Deutsche Bank calculates that the shortfall could diminish to 907,000 in ounces this year, compared to 1.2 million ounces in 2014, and the market will continue to see production deficits until at least 2020.
“There’s a very bullish story there that’s going to play out in the long term,” Jeremy Baker, senior commodity strategist at Harcourt Investment Consulting AG, said in the article. “There is a good argument that palladium should outperform other precious metals.”
ETFS Physical Palladium Shares
For more information on the palladium market, visit our palladium category.
Max Chen contributed to this article.