Pal­la­dium

Finweek English Edition - - INVESTMENT -

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.

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