Platinum and palladium are the best known among the six platinum group metals (PGMs). The other four are produced only as the co-products of platinum and palladium. (Read:Time to Invest in Platinum ETFs? )
Demand for PGMs comes mainly from autocatalysts used to decrease harmful emissions in vehicles. Autocatalysts comprise 55% of the total demand, while electronics, dentistry and chemicals together account for about 25%.
Although palladium is used worldwide, most of the physical metal is stored and most OTC trades are cleared through Zurich. Given its industrial applications, the price of the metal is mainly determined by the economic trends.
At the height of the global financial crisis, palladium prices fell from a high of $558 per ounce in March 2008 to a low of $184 per ounce in December 2008, as the industrial demand for the metal collapsed.
Last year the average prices rose sharply to $730 per ounce, up from $531 in 2010, since the demand for the automobiles grew, particularly in emerging economies.
Palladium is produced mainly in Russia (Norilsk region) and South Africa; during 2011, 41% of the global supply came from Russia while 38% came from South Africa.
Mine production in South Africa has been going down due to worker strikes, safety related stoppages and rising production costs. Supplies from Russia are also expected to be down in the coming years due to diminished stockpiles. (Read: Silver ETFs Outshine Gold)
On the other hand, the demand for the metal is on the rise as the global automakers are increasing their production. Further, auto manufacturers are substituting palladium for more expensive platinum in catalytic converters. According to US Geological survey, as much as 25% palladium can routinely be substituted in diesel catalytic converters; while in some applications, the substitution can be as much as 50%.
Given the supply-demand situation, the prices are expected to shoot up this year. According to the median estimate of 11 analysts surveyed by Bloomberg, the metal will average $850 an ounce in the third quarter of 2012, up 32% from the current price of about $640 per ounce. The survey projects 15% gain for gold, 13% for silver and 11% for platinum. (Read: Gold ETFs May Continue to Shine in 2012)
ETFS Physical Palladium Shares (NYSEARCA:PALL)
PALL, the only physically backed exchange traded product for palladium presents a cost-effective, convenient and secure way of investing in palladium. The ETF introduced in January 2010, currently has $507 million in assets under management. The fund charges 0.60% annually to the clients for operating expenses, which is slightly above the category average of 0.55%.
The shares seek to track the performance of the price of palladium bullion, less trust’s expenses.
BNY Mellon is the trustee while JPM Morgan Chase is the custodian. The trust holds physical palladium bullion in London and Zurich. The custodian maintains a list of uniquely identifiable palladium ingots and plates, which is updated and published daily on the website. Additionally biannual vault inspections are conducted by a bullion assaying firm.
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