The Strategist

Demand for electric cars will propel growth of palladium

11/30/2017 - 11:54

2017 was very successful for palladium. Since the beginning of the year, its value has grown by almost 50%, outperforming other precious metals. Moreover, the growth potential has not been exhausted yet, given the good fundamental factors of the world palladium market.

James St. John
James St. John
Almost 80% of the global demand for palladium is provided by the automotive industry, where it is used in the manufacture of catalysts for exhaust gas purification systems (palladium catalysts are generally used in cars with gasoline engines, while catalysts based on other precious metals, such as platinum, are mostly found in cars with diesel engines). Therefore, the prospects for the metal are closely related to the global automotive market, which looks quite confident on the whole, although its growth rate has slowed down compared to the previous years.

According to industry experts, the global market for cars this year will grow by 2.1% to 95.8 million cars, in 2018 - by 2.5% to 98.2 million cars, and in 2019 will exceed the mark of 100 million cars. The upswing will be facilitated by increased economic recovery in the world, an increase in the number of the middle class and the share of the urban population. China and India are expected to demonstrate the highest growth rates, while more traditional car markets - the US, Europe and Japan - will grow at a relatively slow but steady pace. It is noted that the loud scandal with "dieselgate" turned buyers’ preference to cars with gasoline engines. As for electric cars, their sales are growing at an accelerating pace and, according to forecasts, will pass the mark of 3 million cars this year. At the same time, the share of such cars in total world sales will remain rather low in the next few years.

Thus, the global demand for palladium in the medium term is likely to continue to rise, while the supply of this metal in the last few years has been limited. In 2016, the palladium deficit amounted to 651 thousand ounces, and it may increase to 800-850 thousand ounces by the end of this year. In the absence of new significant palladium projects, the world market for this metal is predicted to remain scarce in the years to come.

Summarizing the foregoing, quotes of palladium have a good chance of further recovery. At the same time, for ordinary investors, betting on the growth of the value of palladium is preferable through the acquisition of ETFS Physical Palladium Shares. Compared with the purchase of physical metal in this case, there is no need to bear the costs associated with its storage and insurance, and the management fee in this ETF is at a quite reasonable level.

Stock exchange ETFS Physical Palladium Shares reflects dynamics of the cost of palladium on the London Metal Exchange (LME), its only investment tool are palladium ingots of LPPM Good Delivery. The total amount of assets managed by the fund is $ 233.9 million, management fee is 0.60% per annum. The fund's return from the beginning of the year was 47.2%, for the last three months - 7.7%.