Is this a good time to buy palladium?

The price of palladium took a step back at the end of January, but has found its way back up again this month. At the time of writing, the price stands at $2,285 per troy ounce, an increase of more than 20% since the beginning of this year. Last year, the price shot up by more than 50%, driven by a structural shortage in the market.

Is it still interesting to invest in palladium? According to the latest figures, the supply of precious metals remains scarce, as production is barely increasing. Also, mining production is hardly increasing and the market remains dependent on a limited number of producers. Last year, for example, Russia and South Africa accounted for almost 80% of global production with 5.5 million troy ounces of palladium.

Supply and demand palladium (Source: Johnson Matthey)

Above-ground stocks are declining

Due to increasing demand for palladium from the automotive industry, there has been a structural shortage in the market for years. This shortfall was partly compensated for by above-ground stocks, as the graph below shows. In fact, in ten years, stocks in ETFs have more than halved. There are still stocks at other market parties, but they are not always available to the market.

According to estimates by market researcher Metals Focus, total stocks worldwide have halved in the last ten years. Currently, the supply is equivalent to about fourteen months of global demand. The following graph is based figures from Bloomberg and Metals Focus.

Global supply of palladium is declining

According to Johnson Matthey, a major player in the palladium and platinum market, there has been an estimated 11.6 million troy ounces of palladium since 2007 abstract stocks in Switzerland and the United Kingdom. Part of it has been used by industry, another part is still present in the form of coins and bars.

Since 2007, an estimated 11.6 million troy ounces of palladium have been removed from stockpiles in Switzerland and the United Kingdom (Source: Johnson Matthey)

More demand for palladium

The automotive industry is the main player in the platinum and palladium market. Both precious metals have certain properties, which allow them to capture harmful exhaust fumes. They are therefore increasingly used in catalytic converters of cars, as shown in the graph below from the last Market Report by Johnson Matthey.

It is also striking that car manufacturers have increasingly opted for palladium in recent years. This is because this precious metal is mainly used for petrol cars and platinum is used more for diesel cars. Because consumer preferences have shifted towards petrol in recent years, the demand for palladium in particular is rising. In addition, car manufacturers need more and more precious metals for catalytic converters due to stricter environmental requirements.

Increasing demand for platinum and palladium in the automotive industry (Source: Johnson Matthey)

What does this mean for the price of palladium?

As long as the scarcity of palladium continues, the price may continue to rise. According to Citigroup, any substantial drop in the price is a great opportunity to expand positions. Especially if the car industry will need even more palladium in the coming years to meet the stricter environmental requirements. Goldman Sachs expected That the price may rise further to $3,000 per troy ounce, but that a correction will follow after that.

The Fundamentals for palladium look favorable at the moment. At the same time, the price is at an all-time high, also compared to platinum. What is certain is that the market will remain highly volatile in the coming period and will provide ample opportunities for investors.

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Disclaimer: Holland Gold does not provide investment advice. This article is for informational purposes only and is not intended as investment advice. Past performance is no guarantee of future results.