In 2019, palladium was the toast of the town, surpassing gold in price and looking like it could cross the $3,000 per ounce price level before the coronavirus outbreak put a roadblock in front of that rally. Now, the precious metal faces other challenges that could tamp down demand and thus, prices.

Namely, an auto manufacturing slowdown in China could result in palladium demand dropping by about 200,000 oz, according to an S&P Global Platts report.

“We’ve tried to do some analysis around to calculate what slower auto sales in China mean for palladium demand,” Standard Chartered’s global research precious metals analyst Suki Cooper told S&P Global Platts in an interview. “If we use the IHS forecast, that 1.7 million units could be lost if plants were closed until mid-March, we estimate the loss in palladium demand could be around 200,000 oz.”

Cooper only sees weaker demand ahead even as the effects of the coronavirus are waning in China. The China Association of Automobile Manufacturers (CAAM) noted that car sales in February fell 82, but also stated that as of March 11, about 40% of the Chinese auto industry restarted production.

Still, it may not be enough for bullish palladium traders to celebrate.

“It doesn’t alter that balance but what I think it does do in the near term, we are likely to see some softness in demand which means prices may come off a little bit but we think the downside should be well supported given that we think for the full year we are still likely to see a deficit market.”

^SPAD Chart

^SPAD data by YCharts

As demand lessens, investors may want to keep a close eye on the Aberdeen Standard Phys PalladiumShrs ETF (NYSEArca: PALL). PALL seeks to reflect the performance of the price of physical palladium, less the expenses of the Trust’s operations.

The fund is designed for investors who want a cost-effective and convenient way to invest in palladium with minimal credit risk. Based on Morningstar performance numbers, PALL is down 18% YTD after flying high in 2019 with a 53.94% gain.

Key features of the fund per PALL’s fact sheet:

  • Physically-Backed: Cost-effective and convenient access to physical palladium.
  • Transparency: The metal is held in allocated bars and a bar list is posted daily on aberdeenstandardetfs.us
  • Pricing: The metal is priced off the LPPM’s specifications for Good Delivery, which is an internationally recognized and transparent benchmark for pricing physical palladium.
  • Vault Location: Metal is held in London, United Kingdom at a secured vault of J.P. Morgan Chase Bank, N.A.
  • Vault Inspection: Inspectorate International, a leading physical commodity auditor, inspects the vault twice per year (including once at random).

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