You Say “Pollution,” I Say “Palladium”
Back in March, I told Wall Street Daily readers that palladium prices would continue higher thanks to supply concerns.
You see, about 80% of global palladium production comes from two countries – Russia and South Africa.
And since March, the turmoil in these regions has pushed prices from $780 to $880 per ounce. In fact, palladium is up about 22% year to date, and is now trading at a 13-year high.
Yet palladium isn’t solely a supply side story, as demand from the emerging world is also having a big effect on prices.
Vehicle Market Driving Palladium Demand
Like so many other commodities, palladium is in high demand in China.
In the first half of 2014, Chinese palladium imports jumped by 30% to 438,000 ounces. Even steadily rising prices couldn’t slow down China’s hunger.
Now, estimates show that Chinese imports will account for a stunning 15% of global palladium mine supply in 2014. The main driver of this demand is the vehicle market.
You see, palladium is a key component for fueling gasoline-powered vehicles, which represent the vast majority of Chinese vehicles.
And last year, Chinese vehicle production grew by 15.7% to reach nearly 18 million units. What’s more, the market may see double-digit growth again in 2014. Production in the first half was already 11.8 million units.
In addition, China is taking steps to match the emissions standards already in place in the United States. That will lead to higher required PGM (platinum group metals) loadings for vehicles, which translates to more palladium used per vehicle.
Stockpiling Palladium Profits
The icing on the cake is that China might soon run down its stockpile of palladium. When that inventory begins to dwindle, the country will be forced to import much more, and in a world with already-tight supplies… fireworks might ensue in the marketplace.
The change wouldn’t likely help the world’s major producers, which are located in troubled South Africa and Russia.
But it would present a good opportunity (heck, even now is a good opportunity) to own an exchange-traded fund backed by physical palladium. One such ETF is the ETFS Physical Palladium Shares (PALL). This fund is backed by physical palladium bars held in vaults located in London and Zurich. And the expense ratio of the ETF is a very reasonable 0.60% annually.
Investors should be able to ride this ETF to palladium prices as high as $1,000 per ounce this year.
And “the chase” continues,