Palladium Price Rise linked to ETFs


"George Topping sees good potential for prices to spike."

With palladium prices at two-year highs, many industry experts say that the rise of the metal—primarily used in cars—is not solely due to the auto sector recovery, but also impressive investment demand.

ETFs Physical Palladium Shares (Ticker: PALL) has created additional investment demand and in turn are removing significant amounts of physical palladium from the supply chain, the industry officials said.

George Topping, managing director of base metals research for Thomas Weisel Partners, said that during the past two years the demand for investment has grown and there has been a tremendous interest in palladium.

"With ETFs, it makes it even easier to invest—they are a sudden and unexpected source of demand. It doesn’t give time for the industry to respond, so there is a good potential for prices to spike, "Topping said.

Palladium, currently sitting at $517 an ounce (as of press time) could possibly hit highs of $700, said Topping.

Quoting figures from Johnson Matthey, Topping said that investment demand for palladium was 260,000 ounces in 2007; 420,000 in 2008 and 635,000 ounces in 2009.

In its annual report released last week, Stillwater Mining Company—the only U.S. producer of palladium and platinum—indicated that new palladium ETFs have increased retail demand for PGMs. Stillwater Mining is also the largest primary producer of platinum group metals (PGMS) outside of South Africa and Russia. The firm’s annual report highlights the fact that palladium remains a scarce commodity with very limited prospects for supply growth and one whose production problems are still present.

“South African production, key to global supply, faces impending severe operating and growth constraints,” the Stillwater report said. It also said that Russian state inventories of palladium that historically overhung the market now appear to be fully depleted.

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