Global environmental trends sustain growth of palladium and rhodium ETF values

Johann ErasmusDriven by palladium and rhodium’s current demand as the catalytic material of choice in an increasingly emissions-conscious age, both PGM metals are more valuable than gold and platinum on an ounce-for-ounce basis, according to Standard Bank

The US dollar price of both palladium and rhodium has increased by 40 per cent and 84 per cent respectively since January 2018, and 117 per cent and 310 per cent over the two years since January 2017.

This is the price context driving the recent performance of Standard Bank’s rhodium and palladium ETFs, “Which have been, respectively, the first and second-best performing ETFs in South Africa for two years in a row,” said Johann Erasmus, head of ETFs at Standard Bank.

At the same time, the value of platinum, the other major PGM metal, has decreased by 11 per cent since January 2018, largely due to production surpluses and reduced demand for platinum in the jewellery sector.

Despite these sustained PGM price trends, “The ETF investor market has behaved somewhat counterintuitively,” in the view of Erasmus as, “Investors maintain their commitment to platinum ETFs even as they decreased their investment in better-performing palladium and rhodium ETFs.”

Some of the sell-off of palladium and rhodium ETFs can be explained by profit-taking as, “Investors lock in the huge price gains achieved by palladium and rhodium ETFs over the last two years compared with the performance of the local equity market,” noted Erasmus.

The market trends are compelling

As Europe and China continue their migration to the use of smaller and more efficient gasoline cars, and China introduces ever-tighter emissions controls, vehicles in these markets will require higher loadings of both palladium and rhodium.

“Both metals are preferred by the manufacturers of catalytic converters of gasoline cars,” explained Erasmus. Moreover, the recent ‘diesel-gate’ scandal raised environmental concerns around the fuel, driving a general move away from diesel vehicles, especially in Europe, traditionally a large user of diesel vehicles.

Moreover, the sustained growth in demand for gasoline vehicles in both the United States and China is only serving to reinforce these trends. At the same time, Europe’s introduction of tighter controls on diesel is being augmented by legislation encouraging the development of hybrid electric and gasoline cars.

South Africa looks set to continue with a surplus supply of platinum despite the shutting down of marginal operations. The closure of these operations, however, also reduces the supply of palladium and rhodium which occur and are produced along with platinum in the same operations.

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