In a recent
Stockhouse podcast, we invited three expert panelists from
New Age Metals Inc. (
TSX-V:NAM,
OTC:NMTLF,
Forum) and
Generation Mining Ltd. (
CSE:GENM, OTC:GENMF, Forum) to discuss the metals & mining sector’s hottest PGM – palladium.
Palladium prices continue an upward momentum and look to soar above the US$1,800 per ounce again. Although gold is the risk-off asset for safety and an historic hedge against inflation, Palladium has now become more valuable than gold in the precious metals sector. Today, most palladium production comes as a by-product of nickel and platinum mining, with Russia and South Africa controlling approximately 80 percent of global palladium production.
From three to five, Canada, the US, and Zimbabwe produced 19, 13, and 12 metric tons of palladium in 2017 respectively. The prolific Thunder Bay District and Sudbury Basin are noted for palladium production and vigorous exploration continues in this historic and abundant mining region.
Ore deposits of palladium are not very common. Palladium is often recycled with one of the primary sources of recycled palladium coming from scrapped automotive catalytic converters. Due to the limited availability of palladium in nature and its high demand, the element is often viewed with intense investment interest…now more than ever. The ultra-rare minerals of polarite and cooperite also contain palladium. And palladium can be recovered from spent nuclear fuel or other radioactive waste since the nuclear fission reaction produces this element. However, extraction of palladium produced by this method is not feasible to date.
(Catalytic converter using palladium. Image via WikiCommons)
In fact,
palladium is now the most valuable of the four major precious metals, with an acute shortage driving prices to record highs. A key component in pollution-control devices for cars and trucks, the metal’s price has doubled in little more than a year, making it more expensive than gold for the first time in metals trading history.
At press time palladium was trading at US$1,797 per ounce, almost 20 percent more valuable than gold, which was trading just shy of US$1,500 per ounce.
Palladium demand remains extremely strong and supply shows signals of increasing scarcity. However, the Palladium bull market seems to be at risk and, as is the norm in the PGM sectors, is induced by platinum.
Robust Demand
According to UBS precious metals strategist Joni Teves, palladium has also been supported by healthy demand, limited supply, higher equities, and liquidity concerns.
“The combination of healthy demand, constrained supply, and challenging liquidity conditions is likely driving prices higher here. Our understanding is that there were some additional supplies earlier in the year mainly from release in pipeline stocks, which likely drove the easing in forwards in H1. But still-healthy demand implies that those stocks should have been well absorbed,” Teves wrote recently.
Palladium has risen in excess of 8 percent or about US$125 so far this month.
“Healthy demand, constrained supply and challenging liquidity conditions are likely driving prices higher,” Teves said.
Since August 2018, major metals and mining hedge funds have increased bets that prices will rise. Yet palladium for immediate delivery trades at a premium to material for delivery later, suggesting manufacturers are scrambling for supply. And palladium-backed exchange-traded funds saw net-outflows this year as investors withdrew metal, then leased it to users at lucrative rates.
Supply and demand is an easy equation to sum up in capital markets – provide it and they will come. And buy. As the panellists on the recent StockTalk podcast pointed out, a precious and rare metal like palladium should always be on a savvy investor’s primary radar.
FULL DISCLOSURE: New Age Metals Inc. and Generation Mining Ltd. are clients of Stockhouse Publishing.