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Palladium ETF Breaks Toward New Records on Strengthening Fundamentals

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This article was originally published on ETFTrends.com.

The palladium exchange traded fund was pushing toward new record highs, with palladium prices closing above $1,400 for the first time on record, after one of the industry's biggest consumers of precious metals projected a widening supply deficit in 2019.

The Aberdeen Standard Physical Palladium Shares ETF (PALL) gained 1.3% Thursday and increased 11.9% year-to-date. The spot palladium was up 1.4% to $1,417.2.

In its recent Platinum Group Metals market report, Johnson Matthey argued industrial demand would outstrip supply by almost 1m ounces in 2019 due to surging demand on stricter emissions standards, the Financial Times reports. Palladium is key component used by the car industry in catalytic converters fitted in petrol-powered vehicles to diminish harmful greenhouse gas emissions.

“The deficit in the palladium market looks set to widen dramatically in 2019, with stricter emissions legislation forecast to stimulate double-digit rises in palladium demand from European and Chinese automakers,” according to the report.

While production shortfalls previous years were buoyed by investor selling, holdings in ETFs are down sharply in the past year to 730,000 ounces, which has left the market without enough liquidity to “bridge the gap between industrial demand and supply”, Matthey said.

“At their height in 2014, ETFs held nearly 3m ounces of palladium. In the four years since then, the redemption of these holdings has added more than 2.2m ounces of liquidity, but this has not been sufficient to prevent a series of market deficits and a gradual tightening of physical availability,” according to the report.

Meanwhile, some warn that Russia's strategic stockpile of palladium is close to running out. Matthey estimated that 11.5 million ounces of palladium has taken out from the inventories over the past decade.

“Analysis of trade data remains highly supportive of the view that the market overhang created by Russian government sales in the 1990s and early 2000s is being consumed rapidly,” according to the Platinum Group Metals report.

“While we believe that there are some residual stocks of metal, including unknown quantities of palladium produced during the Soviet years and that have ended up in the ownership of the Russian central bank, it is hard to predict when this inventory will be released to the market.”

For more information on the palladium markets, visit our palladium category.