Palladium: The limited supply options.
Waterberg JV: The Waterberg project, located in South Africa, is one of the very few significant palladium development assets, globally. Impala Platinum, the world’s second largest platinum producer, owns 15% of the project and has an option to increase their ownership to 50.01% following the publication of the Waterberg Definitive Feasibility Study (DFS), due later this year. Impala have been quoted recently as saying they intend to develop the mine.
Metal Prices: The palladium price has tripled since early 2016 and currently trades around US$1,320 per ounce. Investors need to decide if this is a short-term bubble or a longer-term price rise driven by a structural shift in fundamentals. Over 85% of gross demand comes from its industrial use in auto-catalysts which has seen strong growth. Palladium has been in deficit since 2012 and despite outflows of physical palladium from Exchange Traded Funds (ETFs) over the last four years, prices continued to move higher.
China 6: emissions legislation is being phased-in late 2019 and then in 2022. This legislation is arguably stricter than current European legislation. Since PGM loadings in Chinese vehicles are ~ 30% lower than in North America and Japan, in our opinion, the only way to meet the stricter regulation will be to increase PGM loadings per vehicle. Autocatalyst manufacturer BASF forecast additional demand of 1 million ounces of palladium a year from the regulation, in a market with primary mine supply of only 7 million ounces per annum. The important question to consider – how will supply keep up with demand?
Hybrids vs Electric Vehicles(EVs): EVs receive most of the headlines and are estimated to take 8% of the global auto market by 2025, however hybrids are expected to take a 23% share - (JP Morgan). According to SFA Oxford, hybrid vehicles contain 10-15% more palladium than conventional gasoline vehicles. With major automaker production plans appearing to confirm a significant shift towards hybrids, we see palladium prices higher for longer.
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