Thanksgiving Is a Time to Talk About Palladium

Yesterday was Thanksgiving in the USA, so the American session was very passive, and there was no particular news. Is that a local panic in connection with a new strain of coronavirus from South Africa.

Let's take advantage of this pause in the information flow and talk about palladium. Why about him and why now?

Bloomberg Commodity Index continues to grow and update the highest levels in many years. But palladium has lost 40% of its value over the past few months. Which in itself is of interest. And now we are talking about palladium because its prices have approached the key support level, and the automotive giants have reported on the results of the third quarter and we can already draw some conclusions.

Let's start by answering the question why palladium fell? In short, a shortage of chips has caused problems for car manufacturers. Extremely typical in 2021 was news such as Ford suspended the work of such and such a factory, Toyota closed such and such a factory for so many weeks, etc.

Since 84% of the global demand for palladium is generated by automakers, the decline in palladium prices looks logical. But as usual, the medal has more than one side.

Palladium has been and remains one of the most scarce precious metals in the world. According to Metals Focus, the palladium deficit in 2021 with a market volume of 10 million ounces per year could reach 1 million ounces per year. Note that the palladium market has not come out of the deficit for 5 years in a row. And it's hard to imagine a better reason for a rise in prices on the physical asset market than a deficit (ask oil after OPEC + cut production by 10 million b / d).

Will 2021 be a watershed year due to chip shortages? Judging by the current statistics on car production in the world, definitely not. Yes, the production level of 2019 has not yet been reached, but the volumes of 2020 have already been exceeded by a third (and 2020, even with a sharp decline in car production, was a year in short supply for palladium). But in addition to the quantitative aspect, there is also a qualitative one - the tightening of emission standards leads to an increase in demand for raw materials for catalysts (palladium).

The palladium supply is also not going well. The two key palladium producers in the world - Russia and South Africa - are in trouble in 2021. Russia - due to the accident at the mines of Norilsk Nickel (the largest palladium producer in the world with a share of under 40% of world production), and South Africa in recent years has basically reduced production.

Total: there is a feeling that the markets have overdid it with minus 40%. It's not that bad, and on the contrary, current palladium prices look very promising. So we recommend that you pay attention to the purchase of this metal.