Palladium and related exchange traded funds were outperforming in the precious metals space Monday as China and the U.S. put the trade war on hold and agree to further talks.
The ETFS Physical Palladium Shares (NYSEArca: PALL) rose 2.4% Monday and was testing its long-term trend line at the 200-day simple moving average.
While gold was weakening Monday and touched its lowest intraday levels of the year on easing trade tensions between the U.S. and China, palladium prices strengthened on the prospects of improved trade relations and potentially increased industrial demand out of China. Palladium enjoys strong industrial demand with around 80% of palladium demand associated with use in catalytic converters in automobiles.
According to Johnson Matthey Plc., palladium consumption in devices used to clean exhaust fumes is expected to surge to a record in 2018 on increased appetite for gasoline-based vehicles, Bloomberg reported. Chinese automotive sales are seen as the main contributor with tougher pollution control forcing carmakers to increase the amount of palladium used.
“The prospect of significant growth in Chinese palladium loadings has moved closer, because it looks increasingly likely that some cities and provinces will implement” new regulations early, Peter Duncan, the general manager of market research at U.K.-based Matthey, said in a report. “This could happen as early as next year and would result in a double-digit increase in palladium consumption on Chinese cars.”
Trade War Speculation Easing
Consequently, with trade war speculations easing between Beijing and Washington D.C., the outlook on U.S. car sales to this Asian emerging market is improving, along with the potential demand for palladium used for catalytic converters. China is a big market for GM, Ford and many other multinational brands.
According to Stephanie Brinley, a senior automotive analyst at IHS Markit, China is a market with significant opportunity for continued growth for the automobile industry. In 2017, the Chinese sold 27.5 million units and is expected to sell 30 million units by 2020, China Daily reported.
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