PALL: The Palladium Premium Over Platinum Collapses -LSB

Palladium’s bull market began in early 2016 when the price bottomed out at $451.50 an ounce. The precious and rare metal made more than six-year lows and highs, reaching $3,380.50 an ounce in NYMEX palladium futures contract in March 2022. Palladium’s rally sent the metal nearly six and a half times higher. The peak of palladium coincided with the Russian invasion of Ukraine.

Palladium is a platinum group metal, and its composition, density and heat resistance make it a critical component in automotive catalytic converters that clean toxins from emissions. The latest decline took palladium below $1,000 an ounce for the first time since 2018. abrdn physical palladium stock ETF (NEW YORK:COAT) moves lower and lower with the price of the metal.

Palladium ran out of steam on the upside at the March 2022 record high

palladium started a fourteen-year rally in 2008 after bottoming out at $160 an ounce.

The chart shows the pattern of lows and highs in the palladium futures market from the 2008 low. In 2018, the price eclipsed the $1,000 level, leading to an upside breakout. When Russia invaded Ukraine in March 2022, palladium rose to a record high of $3,380.50 an ounce due to supply concerns. Palladium ran out of steam on the upside at that March 2022 high, leading to a downtrend and breakout that took the metal below $1,000 an ounce in November 2023.

Russia is the main producer of palladium – Most palladium comes from the BRICS bloc

Palladium is a rare precious and industrial metal, with most supplies coming from just two countries, Russia and South Africa. In 2022, total worldwide mine production was 210 metric tons or 6.75 million ounces.

In 2022, Russia produced 88 metric tons, or 41.9% of global supplies. South Africa’s production of 80 tonnes was 38%. With almost 80% of the world’s palladium coming from the two BRICS countries, the war in Ukraine and the doubling of the world’s nuclear power has led to supply concerns in the United States and Europe.

Bull markets can lead to illogical, unreasonable and unreasonable prices. Limited liquidity in the palladium futures market led to a rise above $3,380 an ounce as supply concerns caused offers to sell to evaporate. However, the price of palladium rose to an unsustainable level, leading to a price breakout that took it to less than a third of its March 2022 high.

A five-year low below $1,000 an ounce in November 2023

Palladium made highs and lows from March 2022 to November 2023, recently dipping below $1,000 an ounce.

The ten-year chart shows the drop to $974.90 an ounce in November, the lowest level since September 2018. The December active month palladium futures contract hit $948.50 an ounce on November 7, the lowest price since August 2018.

Platinum-Palladium Reservoir Spread- Platinum did not go along for the bullish ride

Palladium and platinum are platinum group metals. Other PGMs include rhodium, ruthenium, iridium and osmium. Platinum and palladium on futures markets. Rhodium, ruthenium, iridium and osmium are only traded in the physical market due to limited liquidity compared to other PGMs.

Gold, silver and copper trading on the COMEX division of the Chicago Mercantile Exchange. Platinum and palladium trade on the CME’s NYMEX division alongside traditional energy majors. Platinum and palladium have a long history in power generation, refining and automotive catalytic converters. Oil refineries that process crude oil into gasoline and distillates use platinum and palladium in refining catalysts because of the metal’s high resistance to heat.

Platinum and palladium have many similar characteristics and compositions, making them interchangeable. The boiling point of platinum is 6,917 degrees Fahrenheit. Palladium is 5,365 degrees Fahrenheit. Refining oil into gasoline requires a 900 degrees Fahrenheit the temperature. Distillation processing requires a 750 degrees Fahrenheit the temperature. Therefore, platinum and palladium are suitable for catalysts that process crude oil into petroleum products. They are also ideal for automotive catalytic converters that clean up toxic emissions.

South Africa and Russia lead the world in platinum and palladium mining production. The palladium-platinum spread monitors the metal’s price relationship. Prices may be differentially sensitive due to volatility.

The chart of NYMEX palladium futures minus platinum shows that platinum rose to a price above $1,500 an ounce over palladium in 2008, when platinum hit an all-time high of over $2,300 an ounce. Industrial customers favored palladium, replacing the metal with platinum over the following years. As demand for palladium in automotive catalytic converters increased, palladium prices moved to a premium over platinum in 2017 and the premium increased to over $1,750 per ounce in April 2022.

Over the past few months, the palladium premium has shrunk below $170 an ounce to a recent low, given the palladium market and the relative stability of platinum prices. The decline in prevalence indicates that industrial users have replaced platinum with palladium for cost reasons.

Platinum did not go along with palladium’s bullish ride. One of the reasons may be South Africa’s dominance in platinum production, while Russia is the leading country in palladium production.

In 2022, total platinum mine supplies were about 171 metric tons or 5.5 million ounces. The chart highlights that South Africa accounted for 81.9% of production, while Russia contributed 11.7%. Therefore, palladium was much more sensitive to the war in Ukraine and sanctions than platinum, causing the March 2022 price increase.

PALL is the palladium product ETF

The elasticity of demand for palladium is likely to lead to a narrowing of the palladium-platinum spread as industrial consumers replaced platinum with palladium over the past year, causing palladium prices to explode while platinum remained relatively stable.

In palladium, the upward trend from 2008 to 2022 and the war in Ukraine led to price increases that drove the metal to an unreasonable price. Downtrends tend to do the same to the downside, and prices below the $1,000 level in palladium could have created a significant bottom, creating a buying opportunity.

The direct route to palladium investment is through the physical market for palladium bullion and coins. Limited production and industrial demand create high premiums for physical buyers. The NYMEX palladium futures contract contains 100 ounces of the metal. The delivery mechanism allows prices to converge to physical prices during delivery periods.

The abrdn physical palladium stock ETF is a liquid alternative to the futures arena for investors seeking palladium exposure without leverage or margin.

At about $100 per share on Nov. 21, PALL had $202.35 million in assets under management. PALL trades an average of 45,199 shares per day and charges a management fee of 0.60%. PALL’s fund profile says:

PALL holds 100% of its assets in physical palladium bullion.

After hitting a low of $948.50 on November 13, NYMEX active-month December palladium futures recovered 16.1% to $1,101.50 on November 21.

During the same period, PALL ETF rose 14% from $88.07 to $100.37 per share. PALL can miss highs or lows when the stock market is down, as palladium futures trade around the clock.

The move below the $1,000 level could be a low blow that created a compelling buying opportunity in the rare and industrial precious metal. The strongest factor facing palladium and other platinum group metals is that most production comes from two BRICS countries, Russia and South Africa, which are allies and at odds with the US and Europe.

The fall in palladium could be a buying opportunity, and PALL is an ETF that could see a significant rally over the next few months.