Tuesday, July 23

Investing in palladium: prospects for a metal that has become more expensive than gold

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Investments in palladium continue, but should not be considered for a long-term perspective

Scandals in the automotive industry have changed the market for precious metals. If previously the top was headed by platinum, which was used for the exhaust system of diesel engines, but after the problems in Volkswagen mankind again chose gasoline cars. This trend has made investment in palladium attractive, because the substance contained in the catalytic converters of cars on this fuel, overtook the cost of gold and led the ranking of the most expensive metals. But one should not count on such investments in the long term. Let’s talk about the reasons in more detail.

Why is investing in palladium risky?

The first factor that makes investments in palladium risky is the rareness of metals. Geological surveys of different countries regularly find new deposits of various elements. At one time, aluminum was valued very highly because of its shortage. Nickel used to be the market leader, but then came stainless steel, which sharply reduced its value.
Yes, palladium is really hard to find now. But there will be more of it in the future. Norilsk Nickel, the largest producer of this metal, plans to increase its output by 25% by 2025. NorNickel’s investment of $12 billion is already known. Given the decline in the value of nickel and platinum, it is palladium that can provide the necessary profit for the company.
The second reason, which is even more important than the first, is the development of cars with electric engines. Traditional fuels are gradually losing their market position, which is why the demand for palladium and platinum is falling (used to produce catalytic converters in the exhaust system of gasoline and diesel engines, respectively). Tesla is now the leader in electric car production, but other companies are also trying to keep up. Renault Zoe, Nissan Leaf, BMW i3, Chevrolet Volt occupy the European market. In addition, countries are preparing to ban cars on “dirty fuel” at the legislative level. Norway, France, Great Britain, India, China, Germany and the Netherlands already have similar plans. All these factors will have a negative impact on palladium prices.

The third reason is that some metals are too narrow in scope. Rhodium and palladium belong to this group. Researchers from the bank Morgan Stanley published a report, according to which 80% of purchases of palladium were made by car companies producing cars with gasoline engines. Gold and platinum in this sense have a serious advantage, because they are widely used in the jewelry industry and radio electronics. Therefore, the demand for them may fluctuate, but it will remain.
In the case of palladium, the situation is much worse. In fact, it is not used anywhere else except in the automobile industry. There is a small demand in the radio engineering industry. It is possible that companies will be interested in metal for production of membranes necessary for hydrogen purification (they also see prospects in hydrogen fuel). But it is not yet clear what will make palladium in the future very much in demand.
At present, metal is expensive and in great demand, which fuels the interest of investors. However, this element may be considered only for short-term investments. In the nearest 5-7 years palladium is likely to lose its price very much.


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