Why Palladium ETF Has Soared in 2019

Sweta Jaiswal, FRM

Palladium has gained investor attention on its continued rally in 2019. The auto-catalyst metal just touched an all-time high of $2000 per ounce. The recent shutdown of palladium mines due to power crisis in South Africa, the world’s second-largest palladium supplier, has been pushing prices higher. Interestingly, the FTSE/JSE Africa Platinum Mining Index has increased three times in 2019 (the highest-ever annual gain).

Notably, palladium prices have risen around 60% since the beginning of 2019. In fact, Aberdeen Standard Physical Palladium Shares ETF PALL has gained 54.3% year to date, outperforming the 10.8% gain of the Invesco DB Commodity Index Tracking Fund DBC.

Analysts at Citigroup Inc. continue to remain bullish on the metal and expect the prices to cross the $2500 milestone in the first half of 2020. Let’s take a look at the factors that are driving the palladium rally (read: Palladium ETF Is Soaring, Will the Trend Continue in 2020?):

Factors Behind the Upside

Palladium has been seeing strong demand in the manufacturing of industrial products.  The metal is used for catalytic converters in gasoline-powered cars. Catalytic converters transform harmful gases, including hydrocarbons, carbon monoxide and nitrogen dioxide to more benign nitrogen, carbon dioxide and water vapor. The demand for the metal is expected to keep rising as emission standards are getting more rigid in countries like India, Europe, China and Japan. In fact, even before the implementation of the nationwide emissions standard in 2020, China is seeing a surge in demand for palladium (read: What's Behind the Rally in Palladium ETF?).

Moreover, as the United States and China have apparently agreed on a phase-one trade deal, the analysts expect improvement in global economic growth along with increasing strength in the global automobile industry. This in turn is expected to drive demand for palladium globally.

Meanwhile, the markets have been long grappling with a supply crunch of palladium. In fact, at the current level of supplies, market demand for the metal remains unmet. Moreover, analysts expect the palladium market to continue to witness supply shortages. In fact, the world’s largest producer of the auto-catalyst metal, Russia-based Norilsk Nickel, is uncertain about its ability to resolve the supply issue. It is being largely speculated that Moscow is close to completely exhausting palladium inventory levels while some are withholding supplies as they are waiting for prices to soar. In fact, the global palladium market witnessed a shortfall of 600,000 ounces in 2018. The deficit is estimated to increase to 800,000 ounces as palladium consumption touches 11.2 million ounces while mining production stays at a deficit and residual Russian stockpiles diminish.

Palladium ETF in Focus

PALL reflects the performance of the price of palladium, less Trust's expenses. The shares are designed for investors who want a cost-effective and convenient way to invest in physical palladium. PALL charges 60 basis points in fee per year and has AUM of $309.9 million (see all Precious Metals ETFs here).

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Invesco DB Commodity Index Tracking Fund (DBC): ETF Research Reports
 
Aberdeen Standard Physical Palladium Shares ETF (PALL): ETF Research Reports
 
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