Palladium-related ETFs have surged and is now the best non-leveraged ETF of the new year as strong fundamentals helped the precious metal maintain its luster.
The Aberdeen Standard Physical Palladium Shares ETF (NYSEArca: PALL), which seeks to reflect the performance of the price of physical palladium, has increased 25.5% year-to-date.
After almost a decade of being undersupplied, the world is now scrambling to turn up any palladium, the Financial Times reports.
The current dearth of palladium in the global markets reflects ongoing supply issues as the production of the white metal is constrained. Palladium is typically are mined as a byproduct of platinum and nickel, commodities that are not being backed by any new mining projects any time soon.
Furthermore, the a boom on the demand side has further constrained the market and propped up prices. Tougher emissions legislation and stricter vehicle-testing regimes after the disastrous “Dieselgate” scandal in Germany caused the automotive industry to acquire a record 9.7 million ounces of palladium last year, according to Johnson Matthey, a producer of auto-catalysts.
Johnson Matthey calculated that demand outstripped supply by 1 million ounces last year and projected a further rise in automotive demand will push the 11.5m ounce-per-year palladium market deeper into deficit.
New regulations in China, where Beijing has enacted more strict mandates to combat growing pollution levels in a quickly industrializing emerging economy, will require at least 30% more palladium per vehicle, further adding on to an already elevated global demand.
People are worried that the supply and demand dynamics could be stretched so thin that the market could begin to reflect the surge in rhodium, another major component of catalysts for three-way catalytic converters in automobiles.
“I don’t want to mention a name but there has been a senior car company that has experienced a real shortage in rhodium,” Neal Froneman, chief executive of producer Sibanye-Stillwater, told the Financial Times. “You can’t run deficits and consume surface stockpiles and inventories for ever and a day. At some point that turns into a real shortage. And that’s what happened in rhodium and I dare say it could happen in palladium.”
For more information on the palladium markets, visit our palladium category.