Standard Bank’s palladiumbacked exchange-traded fund (ETF) has surged to the second-largest product backed by the precious metal in under three months since its launch.
The bank’s 500 000oz palladium ETF has attracted R4.6bn in funds from investors since its inception on 24 March. That makes it the secondlargest palladium ETF worldwide.
There is a lot of demand for palladium as an alternative store of value at the moment, mainly coming from large asset managers who are looking to diversify their portfolios and benefit from the steady depletion of the aboveground stockpiles of the metal, which has a positive effect on the metal’s price.
The global palladium market has fallen into deficit thanks to increasing demand for the metal which is used in catalytic converters, which reduce emissions of harmful gasses f rom motor vehicles. Supply has also been constrained due to mining disruptions in South Africa, which is the biggest producer of platinum and the secondbiggest producer of palladium in the world.
Standard Bank est i mates t hat approximately 530 000oz of palladium production has been lost due to mining strikes in SA and predicts the global market for the metal will remain in def icit until at least 2016. That’s likely to see the palladium price average $788/oz this year before climbing to $875/oz in 2015, $900oz in 2016 and $950/oz in 2017, according to the bank’s estimates.
The palladium market’s ongoing def icit is l i kely to persist for some time, based on a long term forecast of $900/oz.
Other factors that are likely to keep the palladium market in deficit include ongoing uncertainty about supplies from Russia, the world’s largest palladium producer, as well as increasing demand from the automotive industries of China and the US. Standard Bank estimates a global palladium deficit of 1.65m oz for 2014, 1.43m oz in 2015 and 1.88m oz in 2016.
Johann Erasmus is Head of Global Structuring Group at Standard Bank.