Record highs. A massive drop followed by a resurgence. Further uncertainty in demand… all before May.
The first third of 2020 has had enough swings to normally fill a few years’ worth of news for the palladium market. However, the last few months have been far from normal, and uncertainty surrounding the COVID-19 pandemic and the easing of lockdowns continue to linger.
Fortunately for investors and companies invested in palladium, the
overall strength of the market and its long-term trajectory are solid and positive. Still, it pays to look back at the recent turbulence experienced by the precious metal, and forecast what’s to come in the short term.
Things kicked off with the stratospheric rise of palladium prices in early 2020. Following the precious metal’s out-of-nowhere success in 2019, when prices of palladium sustainably climbed to US $1,900/oz, January and February of 2020 saw palladium’s rise kick into overdrive and reach upwards of US $2,800/oz.
Then, the coronavirus-related swings began. In Early March, with the growing seriousness of the pandemic and sweeping global action to combat the COVID-19 virus, prices of palladium dropped from record highs to just shy of US $1,700/oz. As global demand for vehicles dropped with consumers stuck at home for the foreseeable future and factories experienced temporary work stoppages, the need for palladium used in catalytic converters for vehicles dropped as well.
Fast forward only a few weeks and production shutdowns in South Africa caused a constrained supply and swung the pendulum back. Combined with China’s productions and demand starting to come back online, analysts were expecting palladium to be back on the up. Unfortunately, the extension of lockdowns in many countries and the release of initial economic data and lower forecasted consumption demand threw a wrench in the recovery.
But look at the corresponding price charts of most palladium companies, and you’ll find that they’ve eluded the major swings. In fact, while majors like South Africa’s
Sibayne Stillwater Ltd. (
NYSE:SBSW) did see a downturn in March along with the rest of the market, they’ve since started on a consistent recovery trend.
The reason companies are still on the up? Palladium’s drop in March was significant in the short-term, but even the lowest prices were significantly above the long-term average of 2019, and the recovery back to $2,000/oz levels has only strengthened the outlook. Compared to crude prices, which were already low and fell to new records, palladium was long on the up.
And when you factor in the bigger picture, the long-term outlook for the palladium market isn’t just bullish, it’s bullish
right now. The increase in global demand for catalytic converters and constrained supply were already in play before the pandemic, with China and India being the driving forces behind the increased demand. That’s the reason palladium prices hit $2,800/oz in the first place, and why they’ll start heading there again once demand recovers.
Looking at some of the small-cap plays in the market today, you can see a lot of sustained interest in palladium projects. Exploration companies like
New Age Metals Inc. (
TSX-V:NAM),
Group Ten Metals Inc. (
TSX-V:PGE) and
Prime Meridian Resources Corp. (
TSX-V:PMR) have stayed attractive for investors looking at potential projects in public markets, and private companies like
Sudbury Platinum Corp. are able to generate a lot of excitement as well.
New to investing in Metals & Mining? Check out Stockhouse tips on How to Invest in Metals & Mining Stocks and some of our Top Metals & Mining Stocks.
For more of the latest info on Metals & Mining stocks, check out the Metals & Mining Trending News hub on Stockhouse.
FULL DISCLOSURE: Prime Meridian Resources Corp. and New Age Metals Inc. are clients of Stockhouse Publishing.