Palladium tells a very bullish story

Palladium prices have fallen since last summer, from a 13-year high of over $900 an ounce. But they look set to recover. The car market accounts for over 70% of demand for the metal, which is used mostly in catalytic converters in petrol engines. Global car sales hit a new record in 2014 and US sales are running at an annualised rate of 17.2 million, a 12-year high.

Falling fuel prices should give the market another shot in the arm, while China’s car market, also dominated by petrol engines, continues to expand – deliveries are expected to rise to 25.1 million in 2015, from 23.5 million last year.

Meanwhile, supply of the metal has lagged demand since 2012, which Deutsche Bank sees continuing until at least 2020. That’s down to shrinking output in the two key producers, Russia and South Africa. South Africa suffered a five-month strike in 2014, and labour unrest seems likely to flare up again.

Russia used to have big stockpiles of the metal, but analysts reckon these may be close to exhaustion. It all adds up to “a very bullish story”, says Jeremy Baker of Harcourt Investment Consulting. Deutsche forecasts a 2015 average price of $850, compared to today’s $780. Investors can play the spot price with a London-listed ETF, the ETFS Physical Palladium (LSE: PHPD).