Palladium doesn't attract the speculative attention that other metals receive but it may be time to consider it for your clients' portfolios thanks to industrial demand.
Will Rhind, managing director of U.S. operations with ETF Securities,says that the automotive industry accounts for about 60% of worldwide demand for the metal. Other major buyers include the electronics industry (17%), jewelry (10%), dental (7%) and chemical industry at about 4%. Investment demand in the palladium market is roughly 5% of the metal's trade, he estimates. On the supply side, Russia provides about 50% of annual palladium production followed by South Africa at 35%.
"Palladium is a primary ingredient in a lot of the industrial processes that we know and are familiar with–what you might call the old economy, such as autos," said Rhind. "However, I think going forward, the exciting thing about a metal like palladium is that it's right at the forefront of future technologies, and I think will very much be used as a metal of the future."
The applications of the metal in developing technologies, he notes, includes its use in hydrogen fuel cells. Palladium and platinum are ingredients within hydrogen fuel cells and, also, in hydrogen storage and hydrogen production and purification facilities. "You also have new electronic materials, process catalysts and off-road (vehicle) catalysts," Rhind explained.
A global economic recovery would bode well for palladium-demand. "Palladium's price is much more driven by fundamental factors, unlike gold, which is largely a sort of a fear asset or a safe haven if you will," said Stoyan Bojinov, an analyst with ETF Database in Chicago. "It's found in consumer items, it's used in capacitors, mobile phones, LCD TVs — you name it. "
A little more than half the global supply of palladium goes into the manufacturing of catalytic converters, according to Bojinov. "In layman's terms, it's sort of the device that converts the toxic chemicals from the internal combustion engine into sort of non-toxic fumes. And, we've seen, obviously, a huge push across the auto industry for more efficient, more environmentally friendly cars," he shared.
Thus, palladium is getting bolstered from the rebound in the auto industry very nicely. And; as the industry as a whole is moving in a more environmentally friendly direction, he says, palladium stands to benefit from that movement.
Palladium Plays
Clients who wish to invest in palladium can buy the metal but that involves storage. An easier-to-manage option is to buy a fund that invests in palladium miners, futures contracts or the physical asset. Each approach has pros and cons.
