Precious Metals

Palladium Investing

Palladium prices have continued to rise at a faster rate than platinum prices in 2017. But will that trend continue? Experts have different perspectives.

The price of palladium has risen 28 percent in 2017, and with its stellar performance it is well outpacing other metals in the Bloomberg Commodity Index (ARCA:DJP), including its sister metal, platinum
Palladium was trading at $889 per ounce as of Thursday (June 22), while platinum, which has gained just 2 percent this year, was changing hands at $928.50 per ounce. That’s a price gap of just $39.50, much less than the $100 price difference recorded last month.
Opinions differ on whether palladium will continue to outperform platinum. In May, Reuters analysts said the palladium price will rise above the platinum price for the first time since 2001, but did not pinpoint an exact timeframe for when that will happen. More recently, however, other market watchers have expressed concerns about palladium’s prospects. 

For instance, ICBC Standard Bank analyst Tom Kendall told the Financial Times this week that slowing growth in the US and China, the two largest automotive markets, could limit further increases in the palladium price.
Palladium and platinum are primarily used in the automotive industry for catalytic converters, which filter out harmful emissions from vehicle exhaust to ensure that automobiles meet government emission standards. A slowdown in car sales or manufacturing could lessen demand for palladium and platinum, which could impact the price for both commodities.
Similarly, earlier in June, Commerzbank (ETR:CBK) analysts said they saw no justification for palladium’s price gains considering that the Chinese automotive market is “faltering.”
Data from the China Association of Automobile Manufacturers shows that vehicle sales in the country fell 0.1 percent year-on-year in May and 2.2 percent in April. US vehicle sales also fell 2.9 percent year-on-year in May, LMC Automotive says. Overall, the firm predicts that 17.2 million vehicles will be sold in the US this year in contrast to the 17.55 million new vehicles that were sold in 2016.
That said, not all hope for palladium is lost. A Johnson Matthey (LSE:JMAT) report released in May indicates that palladium was in deficit in 2016, and should be in 2017 as well. According to the report, total net demand for palladium in 2017 will be 7,423,000 ounces, up from 6,925,000 ounces in 2016.
Conversely, though platinum was in deficit in 2016, it is expected to go into surplus this year. “With jewellery, autocatalyst and investment demand forecast to slow, the platinum market is predicted to move into surplus in 2017 for the first time in six years,” Johnson Matthey explains. If the firm is correct, it’s possible that the price of palladium will indeed exceed the price of platinum this year.

Recent palladium project updates

On Wednesday (June 21), North American Palladium (NAP) (TSX:PDL) signed an option agreement with Impala Platinum Holdings (OTCMKTS:IMPUY) and Transition Metals (TSXV:XTM) for the right to acquire a 75-percent interest in the Sunday Lake project near Thunder Bay, Ontario.
Earlier this month, NAP released a feasibility study for increased production and a longer mine life at its Lac des Iles property, also near Thunder Bay. Open-pit mining began at Lac Des Illes in 1993, and underground mining began in 2004. From 2008 to 2010 the mine was placed on care and maintenance due to low metals prices, but it has been operating since then. Highlights of the feasibility study include a 9.5-year mine life and average output of 214,400 payable ounces palladium per year.
Jim Gallagher, NAP president and CEO, said he was pleased to announce the increase in total output at Lac des Iles. He added, “[t]he economics are robust with an all-in sustaining cost of US$527 per ounce, an EBITDA of just over $1 billion and positive free cash flow over the entire life of mine totaling $678 million.”
At the beginning of June, New Age Metals (TSXV:NAM) started induced polarization (IP) geophysical survey work at its River Valley platinum-group metals project in Northwest Ontario. The firm says River Valley is the largest undeveloped primary platinum-group metals resource in Canada, and notes that the geophysical survey will test the potential for eastward and southward extensions of the Pine zone and the adjacent Dana North zone; it will also help identify new drill targets for a summer/fall drill program.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.


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