Palladium Prices Expected to Rally with Mining Stocks into 2021

Jan 20, 2021 06:48 PM ET
Palladium Prices Expected to Rally with Mining Stocks into 2021
  • Palladium futures have gained almost 21% in the past six months but plummeted 16% year over year.
  • Continued application of palladium has propelled the use of rhodium that has rapidly increased its price.
  • The market share of electric vehicles is relatively small compared to petroleum-powered engines to overthrow palladium use.

Palladium has gained 20.92% in the past six months, shrugging off capacity fears that threatened to pull prices down. The futures declined from a high of $2,851.43 per ounce on February 27, 2020 to $2,392 on January 14, 2021 (-16.11%). Additionally, the end of 2020 marked 50 years into the environmental protection agency (EPA) and the legislation of the Clean Air Act (CAA). These two environmental pillars brought about the use of palladium and rhodium as auto-catalysts to curtail greenhouse gas emissions.

Palladium futures are still $111 shy of achieving the 3-month highs of $2,504.40, indicating that the metal is still struggling into 2021.

Palladium futures chart

On its part, rhodium is headed towards $20,000 per ounce, rising more than 1000% since January 2018.

The sale of new cars is expected to shake the automotive sector in 2021. It is projected to rise by 15% after an earlier decline of 18% in 2020. Commercial vehicles that had also decreased by 16% are set to increase by 16% in 2021.

Companies making semiconductors are also decrying the sharp rise in demand for their products, especially from car and electronics manufacturers. The shortage of chips has caused semiconductor prices to rise and cause delays to automakers. This situation may not just cause interruptions in-car deliveries but an increase in costs as well. 

The year 2021 is projected to have higher car prices due to delays caused in delivering components that contain metallic substances such as Palladium. We expect the palladium price to rise since it is also manufactured as an external component in cars.

The downside

The increase in auto-manufacturing has not left behind electric vehicles (EVs). It is expected that EVs' sales will surge by almost 1 million in 2021 (from 2.5 million to 3.4 million).

The increase in auto-manufacturing has not left behind electric vehicles (EVs).

Europe's market share of EVs is projected to increase at the expense of China's claim. The main point here is that electric vehicles do not use burn fuel. Consequently, they do not use palladium as catalytic converters to reduce the emission of GHGs.  

Palladium is mined together with platinum, cobalt, and lithium. The two – lithium and cobalt are essential components of EV batteries. However, EVs' global market is only 4%, with petroleum-powered cars having the largest share. With this understanding, the rising demand for diesel-powered engines is expected to increase palladium demand in the long-run. 

Tracking palladium 

The palladium preference is due to its catalytic features that allow the metal to neutralize toxins and convert them into water vapor and carbon dioxide gas. Palladium futures can be traded on the New York Mercantile Exchange (NYME) or stocks in listed companies.  

Mining companies dealing with palladium mining include:

1.  North American Palladium Ltd (TSX: PDL or PALDF).  

2.  Vale S.A (NYSE: VALE). Its shares have risen by more than 36% year over year.

Vale S.A (NYSE: VALE). Its shares have risen by more than 36% year over year.

3.  Anglo-American Platinum (ANGPY). Its shares have risen by more than 6% over the past year, increasing palladium futures.  

Of the three stocks, Vale is a more potent investment opportunity due to its market stability. It is also traded on the New York Stock Exchange (NYSE), meaning it has a global team of investors with a worldwide market reach. Further, it mines different metals such as iron ore, copper, and palladium. Vale has also been consistent with the rally witnessed in mining stocks into 2021.


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