Investment Idea

The future of Palladium

Anna Svahn
21/01/2021 | 2 min read

The number of cars sold globally is expected to fall by 20 percent, from 75 million cars sold in 2019, to 59.5 million in 2020.

The number of cars sold globally is expected to fall by 20 percent, from 75 million cars sold in 2019, to 59.5 million in 2020. Of the number of cars sold, more than three quarters are petrol cars, and the proportion is growing steadily. Since diesel cars accounted for the majority of cars sold, petrol cars have changed and in 2017 accounted for over 76 percent of all cars sold globally, but that figure is expected to be significantly lower in the future as more and more people choose a hybrid or electric car.

As the demand for petrol cars has increased, so has the price of palladium, which is used as a catalyst in petrol engines. At present, petrol engine production accounts for 85 percent of the demand for palladium.

In 2019 alone, the price rose by 54 percent only to continue up another 46 percent in January and February to 2844 USD per oz and then in the shadow of declining car sales as a result of Covid-19 fell back to today's levels of just under 1900 USD per oz.


Note: Past performance is no reliable indicator of future results.

Despite car sales in China falling by 92 percent in February compared with the previous month, the palladium price remained high. Since then, car sales have recovered somewhat but are still at significantly lower levels than before. The fact that the price did not fall further testifies to the great difference between supply and demand in the past, at the same time as the demand for petrol cars has risen, namely the requirement for how much palladium to be used in each engine has also done so.

Today, car manufacturers pay up to $ 1,000 per car, just for palladium. As the price rises and the demands for more and more palladium in the engines increase, people have started to look for cheaper alternatives. However, we do not yet have a solution, and until electric cars account for the majority of cars sold, demand for palladium will continue to increase. The question is, however, how much the producers are willing to pay per car just for palladium, and how price-sensitive the end customers are then, when in the end they will have to continue to raise the prices of the cars to cover the cost that increased palladium use still entails.

China may not be completely unexpectedly the largest market in the world when it comes to buying cars. In 2019, almost 24 million new cars were bought in China, which is 38 percent more than in the United States, which comes in second place. But perhaps the strongest signal for palladium is the hidden inflation that is seen today in other industrial metals such as zinc, copper, aluminum and nickel (and, of course, palladium, although the price in the previous year was mainly driven by a shortage of metal). The problem with this type of "hidden inflation" is that it takes a while before it appears in consumer prices, as the cost of producing non-durable goods rises slowly, and once it is discovered, it is too late to try to fix it.

There are thus several reasons to consider including palladium in the portfolio. As a precious metal but also as an industrial metal, with inflation as a common denominator.

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.