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Why has palladium been a superior investment?

*Barron's, by Mary de Wet, August 4, 2014

”For metals investors, palladium has been a good bet.

Prices are up 20% this year, and palladium is the one precious metal that didn’t see its bull run falter in 2013.  This year’s rally has been inspired by supply disruptions and a rosy outlook for the global automotive industry, which is the primary consumer of the metal.  Palladium is used in auto-exhaust filters to scrub emissions from gasoline engines.

Palladium traded on the ICE Futures U.S. exchange is hovering near $880 a troy ounce, the highest price in 13 years.

We’ve seen this sort of move in palladium before.  In February 2001, palladium settled at an all-time high of $1,082.80 an ounce on delayed exports from Russia, the largest producer of the metal, and on expectations of increased demand from the auto industry.  Russia’s palladium shipments later picked up, but auto demand didn’t, leaving prices to finish the year at $448 an ounce.

This time, the market is recovering from South Africa’s longest mining strike, while signs point to dwindling stockpiles in Russia and high demand for vehicles.  In January, South African platinum miners walked out after demanding higher wages.  Palladium is often mined with platinum, and South Africa is the world’s second-largest palladium producer after Russia.  Analysts estimate that about one million ounces of platinum production were lost during the strike, and HSBC Securities (USA) says palladium losses were about half of that.  ‘Supply losses in 2014 are significant,’ analysts said in a Bank of America Merrill Lynch Global Research report.  ‘We expect further shortfalls, as miners will increase production slowly after the five-month strike.’

In the north, Russia’s palladium sales are easing.  Russia built up state stockpiles of the metal during the Cold War and has been exporting portions of those stocks for years.  Since the start of 2011, however, the median palladium shipment has been about 6,500 troy ounces a month, according to Barclays Bank.  This has analysts guessing that stockpiles are nearly exhausted.  HSBC expects Russia to sell a total of 100,000 ounces of palladium from its stockpiles this year and none at all in 2015.

With the two biggest producers hampered, global palladium output is likely to fall short of demand for a third year in a row.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.