Palladium begins to outshine gold as price soars and supplies erode
The deficit in the palladium market is expected to continue until at least 2020.
Palladium is the latest metal to enjoy a renaissance after languishing since the GFC, with an inevitable supply crunch pushing the metal up more than 62% since August to reach US$1,367 an ounce on Thursday this week.
The metal’s price has been steadily climbing since mid-August where it lurched to a US$842/oz low from around US$1,100/oz in January 2018.
Palladium, which is used to make catalytic converters for combustion engine vehicles, is believed to be in short supply.
According to the world’s only pure play palladium producer North American Palladium (TSX: PDL), the deficit will remain for the “foreseeable future”.
In 2018, the market is forecast to be in a 1.8 million ounce deficit, which is expected to widen to 2.3Moz by 2020.
Adding to the situation is the fact that 80% of primary palladium supply arises from regions with high politic risk such as Russia and South Africa.
North American Palladium anticipates growing hybrid vehicle demand, strengthening emissions regulations and the mounting preference for petrol vehicles over diesel will continue to drive palladium consumption around the world.
Underpinning this theory is the 3.5% rise in light duty vehicle sales in the first half of 2018, which reached 48.3 million units. Total sales for 2018 are anticipated to surpass 97 million – a year-on-year growth of almost 2%.
Palladium price outpaces gold
The underlying palladium fundamentals have finally bumped its price past gold.
Both precious metals have both been enjoying an upward ride since mid-August where they dropped to their respective year lows of US$1,173.7/oz (gold) and US$842/oz (palladium).
However, while gold almost hit US$1,300/oz at the end of December, it retreated to hover at US$1,293/oz.
Palladium prices have soared over 700% in the past decade.
Unlike gold, palladium pushed past the US$1,300 ceiling – beating even North American Palladium’s predictions.
What is Palladium?
Palladium is a rare precious metal and is one of six platinum group metals (PGM), which comprise platinum, rhodium, ruthenium, iridium and osmium.
Each metal has unique properties and palladium is primarily sought for its ability to act as a catalyst.
The precious metal is used to coat ceramic filters inside catalytic converters. Its catalyst properties convert harmful environmental emissions into less or non-harmful gases.
ASX palladium stocks
The surging palladium price has triggered a revival of interest in PGM projects, with Platina Resources (ASX: PGM) reporting in late December it had received a number of offers for its Skaergaard gold and palladium project in Greenland.
According to Platina, Skaergaard is one of the world’s largest undeveloped gold and palladium deposits outside of South Africa and Russia.
As a result of the increased interest and rocketing palladium price, Platina will undertake a scoping study to determine the best path forward for Skaergaard.
Due to the small market, there’s less than a handful of ASX listed stocks with palladium projects. In addition to Platina, there’s Nkwe Platinum (ASX: NKP), Panoramic Resources (ASX: PAN), Zimplats Holdings (ASX: ZIM).
Nkwe’s 74%-owned Garatau project in South Africa has a resource of 43.69 million ounces comprising three PGM and gold.
The project’s Garatouw deposit’s UG2 reef hosts an average palladium grade of 2.36g/t. Garatau is at pre-development stage, with a definitive feasibility study revealing the project was viable.
Meanwhile, Panoramic owns the Panton PGM project, where it is carrying out metallurgical test work on producing a PGM concentrate.
Perhaps the only primary PGM producer is Zimplats, which produced 56,727oz of palladium in the September quarter, along with platinum, gold and rhodium from its African operations.