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Palladium Price to Benefit From Continuing Supply Deficits
ETF Securities – Palladium Price to Benefit From Continuing Supply Deficits. We believe the palladium price has the potential to perform strongly over the next few months on a combination of price supportive supply and demand fundamentals. Supply side issues in the two main producer countries, Russia and South Africa, coupled with better than expected Chinese growth and early signs of a European recovery are likely to support the palladium price going forward. Currently the palladium price is 13% below the high reached on February 2011. We think the decline has been overdone and expect price gains over the next six to twelve months to be underpinned by strong fundamentals.
Strong Deficit Expected
The palladium market experienced a large deficit last year and demand is expected to outstrip supply by at least 850 thousand ounces in 2013 equivalent to 10% of global supply, according to a number of industry experts. With supply structurally limited by falling ore grades and the expected depletion of Russian government stocks, the palladium price appears to be in a good position to benefit from the recent pick-up in auto sales.
Demand Side
With over 65% of palladium demand coming from autocatalysts, the palladium price is strongly linked to the outlook for vehicle sales in China and the US, the two biggest auto markets in the world. Combined annual sales in China and the US amounted to over 35 million vehicles in 2012 and were up 14% in the nine months to September 2013 compared to a year earlier. However, this sharp rise appears not to have been reflected in the palladium price yet (Figure 2). With China auto sales expected to surpass 20 million2 this year and US light vehicle sales forecasted to climb to
15 million3, we believe palladium price has upside potential.
Supply Side
Palladium mine supply has been declining by an annual rate of 2% since 2007. Norilsk Nickel, the biggest producer of palladium, recently announced a 3% cut in production for 2013. While a pick-up in palladium utilisation in catalytic converters since the mid-1990s has resulted in a sharp increase in supply from recycling, it might not be enough to compensate for dwindling mine supply and the depletion of Russian government stock sales. Decreasing ore grades in the two biggest producing countries, Russia and South Africa, are also likely to cap any upside production potential in palladium supply going forward.
Outlook
The palladium market is likely to remain plagued by a structural deficit due to a combination of increasing demand for autocatalysts and declining supply. We believe that the palladium price has strong upside potential. From a technical point of view, the palladium price appears to be well supported, after having breached its 50dma and 200dma a few weeks ago (Figure 4). We identify the next resistance level in the region of US$760-780oz. Should this be breached, palladium is expected to return to trade above US$800oz, targeting the 2011 highs of US$858oz.
Watch the video summary of this research note, published by Simona Gambarini, Research Analyst at ETF Securities
Important Information
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.
• Global crypto asset adoption rates are significantly higher than previously estimated.
• The data generally suggest that both the US and Europe may be at the cusp of mass retail adoption – a situation often referred to as “Hyperbitcoinization” in the context of Bitcoin.
• Chances are that the growth of adoption will surprise to the upside due to the fact that we are most likely at the inflection point from ”Early Adopters” to ”Early Majority”.
Trump recently made a public statement implying that 50 million Americans already held ”crypto”. The most recent surveys among US consumers seem to support this number.
It is no surprise that cryptoassets have become a major topic during the US presidential election as the parties have become increasingly aware that cryptoasset users could play a significant role at the ballot.
Both Trump and Robert Kennedy Jr. are scheduled to deliver a pro-Bitcoin speech at the upcoming Bitcoin conference in Nashville over the weekend.
It seems as if cryptoasset users are not a small minority anymore that can be ignored.
Here are some recent US bitcoin and crypto adoption surveys for comparison (% of total population in brackets):
• Security.org: 93 mn (28%)
• Unchained: 86 mn (26%)
• Statista: 53.6 mn (16%)
• Morning Consult: 44.2 mn (13%)
• Finder: 38.4 mn (11%)
In general, cryptoasset adoption has been on the rise globally.
A recent global survey among institutional investors conducted by Fidelity even implies that 51% of surveyed institutional investors have already invested into cryptoassets such as Bitcoin.
Another recent consumer survey by Statista implies that approximately every 5th person (21%) worldwide has already invested into cryptoassets.
However, it’s important to highlight that among the top 10 regions with the highest adoption rates, 8 regions are developing countries.
So, cryptoasset adoption rates are even significantly higher among developing countries than in developed countries that often suffer from chronically high inflation rates and weak domestic currencies.
That being said, the data generally suggest that both the US and Europe may be at the cusp of mass retail adoption – a situation often referred to as “Hyperbitcoinization” in the context of Bitcoin.
The reason is that technological adoption in general tends to accelerate at the threshold from the so-called “early adopters” to the “early majority” which is around 16% adoption rate based on the model of technological adoption famously put forth by Rogers (1962).
Global adoption rates are already at 21% while adoption rates in the US and Europe are at around 16% and 14%, respectively. So, there is a strong case for an acceleration of adoption rates in these regions and globally over the coming years.
Recent political developments in the US also imply that Bitcoin and cryptoassets are gradually becoming mainstream.
Trump has recently endorsed domestic Bitcoin mining in the US and both Democrats and Republicans have started accepting crypto payments for campaign financing.
The big success of the spot Bitcoin ETFs this year and the fact that additional types of spot crypto ETFs are being launched marks a significant shift in sentiment among US regulators in this regard.
In short, chances are that the growth of adoption will surprise to the upside due to the fact that we are most-likely at the inflection point from ”Early Adopters” to ”Early Majority”.
Bottom Line
• Global crypto asset adoption rates are significantly higher than previously estimated.
• The data generally suggest that both the US and Europe may be at the cusp of mass retail adoption – a situation often referred to as “Hyperbitcoinization” in the context of Bitcoin.
• Chances are that the growth of adoption will surprise to the upside due to the fact that we are most likely at the inflection point from ”Early Adopters” to ”Early Majority”.
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