Summary
- Palladium is expected to be a profitable investment in 2023 due to a combination of macroeconomic and fundamental drivers.
- The outlook for palladium is positive due to a restocking cycle in the auto industry, tighter mine supply, recycling constraints, and regulations aiming at lowering pollution in the automotive industry.
- PALL is the only pure-play option for investors seeking exposure to palladium, making it an attractive choice given the expected continuation of palladium supply deficits and rising palladium demand.
Thesis
We believe that palladium will be a profitable investment in 2023 due to a combination of favorable macroeconomic and fundamental drivers. On the macro front, the anticipated depreciation of the dollar, along with looser financial conditions in the United States as inflation moderates, will increase demand for risky assets, such as commodities like palladium. On the fundamental front, palladium prices are expected to be supported by a restocking cycle in the auto industry, tighter mine supply, recycling constraints, and regulations aiming at lowering pollution in the automotive industry. As the supply-demand balance of the palladium market remains in deficit and the macro backdrop for commodities becomes more favorable, we believe that palladium prices will appreciate in 2023.
We believe that the Aberdeen Standard Physical Palladium Shares ETF ( PALL ) presents a unique investment opportunity for those looking to gain exposure to palladium and capitalize on potentially favorable macro and fundamental conditions.
Yahoo Finance
Aberdeen Standard Physical Palladium Shares ETF
The Aberdeen Standard Physical Palladium Shares ETF is a physically-backed exchange-traded fund (ETF). The ETF holds allocated bars of palladium, which are stored in secure vaults located in London, UK and Zurich, Switzerland. The metal is inspected twice a year by a leading physical commodity auditor, Inspectorate International, ensuring transparency and trust in the investment. PALL seeks to reflect the performance of the price of physical palladium, less the Trust's expenses, making it an attractive option for those looking to invest in palladium.
Expense Ratio of Aberdeen Standard Physical Palladium Shares ETF
Aberdeen Standard Physical Palladium Shares ETF has an expense ratio of 0.6%. As a reminder, the expense ratio is the annual fee charged by the fund's management to cover operating expenditures. It is expressed as a percentage of the average net assets of the fund, and it is taken from the fund's assets prior to calculating its net asset value.
PALL: A Unique Investment Option Focused Solely on Palladium
PALL, an investment option focused solely on palladium, does not have a direct competitor, making it a unique offering in the market. The closest competing option is Sprott Physical Platinum & Palladium Trust ( SPPP ), which includes both platinum and palladium. However, if you are looking for a pure palladium play, then PALL is the best option to consider.
Seeking Alpha
PALL is currently trading at a premium of 1.05% based on its Net Asset Value ((NAV)). So investors should take this extra cost into account before implementing a position in PALL.
Aberdeen
Palladium market outlook for 2023
In 2022, palladium, like most commodities excluding agriculture and energy, came under pressure due to a negative macro environment characterized by a stronger dollar index as the Fed massively tightened, poor risk-taking appetite, and a slowdown in the Chinese economy due to the implementation of a strict Covid policy. These economic headwinds are anticipated to become macro tailwinds by 2023. In fact, the dollar is projected to see downward pressure as the Fed becomes less aggressive than it was in 2022 in response to softer inflation data. In response to improved financial conditions in the United States, investors will re-establish long positions in all risk asset classes, including commodities. China's economic activity is expected to rebound because the country has abandoned its zero-growth policy. This favorable macroeconomic environment for commodities should enhance palladium's speculative and financial demand.
At the fundamental level, palladium, a precious metal primarily used in the automotive industry for catalytic converters, has experienced supply shortages for the past several years. Due to a combination of factors, including a restocking cycle in the auto industry, tighter mine supply, and recycling constraints, these trends are anticipated to continue this year and next. In addition, palladium loadings are anticipated to rise due to the tightening of emission standards, providing an additional boost to palladium demand.
On the supply side, equipment availability, power constraints, and smelter maintenance could hinder production. In addition, as contracts are renewed, Western palladium consumers may move away from Russian PGM material, which would cause market volatility due to the rerouting of flows and an increase in spot market demand for non-Russian material. The balance of supply risks leans toward the downside.
On the demand side, we recognize that the negative consumer attitude, increased expenses, and rising global interest rates may have a negative impact on the automobile industry's demand. In addition, the majority of the increase in automobile sales is due to electric vehicles powered by batteries that do not contain palladium. However, restrictions in developed market countries, such as the Euro 7 regulations, which aim to tighten pollution standards, will continue to benefit palladium and stimulate the demand for the precious metal.
According to a report by LMC Automotive, the global production of light vehicles in 2022 increased by 6.4% to 82.01 million units. The estimated global production volumes for 2023 and 2024 are 85.97 million and 90.13 million units, respectively, and while the semiconductor shortage is anticipated to improve gradually in 2023, the risk of adverse effects on the economy due to high global prices and the situation in Ukraine is anticipated to persist. Nevertheless, if LMC Automotive's forecast for global automobile production is accurate, the palladium market deficit will likely persist until 2023.
In 2023, palladium prices are anticipated to rise as a result of tighter fundamentals and a more favorable macro environment for commodities.
Conclusion
In conclusion, we believe that palladium could be a profitable investment in 2023 due to the convergence of positive macroeconomic and fundamental drivers. This year, the palladium market may continue to be in deficit due to supply-side constraints and regulations aimed at reducing pollution in the automobile industry. Due to the fact that PALL ETF is the only pure play for investors seeking exposure to palladium, investors may view it as an attractive investment product given the anticipated palladium market deficits and the palladium price appreciation potential in 2023.
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PALL: The Right Choice To Capitalize On Palladium's Potential In 2023