Palladium ETFs Will Be Supported By Industrial Demand

 |  Includes: PALL
by: Tom Lydon

2012 was a weak year in the palladium market due to lowered industrial demand. This year, the metal is expected to gain value. A focused ETF is a preferred method to gain exposure to this commodity.

"The limited supply has led to higher prices for the commodity, especially given the increased demand from the auto industry. Looking ahead, many analysts see 2013's average prices that are steadily to sharply higher than they were in December 2012, particularly during the second half of 2013 when the global economy is expected to gain momentum," Justin Kuepper wrote for Commodity HQ.

The ETF Securities Physical Palladium Shares (NYSEARCA:PALL) is backed by the physical metal, which is stored in London at JP Morgan Chase vaults. The ETF has about $500 million in assets and costs about 0.60%. Spot prices for palladium are at the highest level since October, at $700.75, reports Reuters.

Last year the palladium market suffered from weak demand within the auto industry and slow jewelry sales. Analysts are bullish on the metal this year for a number of reasons.

Demand for the metal is expected to pick up in 2013, due to increased auto sales. Palladium is used in the catalytic converter production process and plays a key role in cleaning auto engines. Globally, auto demand is set to pick up about 6% from last year, higher than the 4% rise seen in 2011.

Also, consumption of palladium in cell phones and computers and jewelry should further provide a boost to the demand for the metal, reports Zacks.

A supply deficit is also on the horizon as a labor dispute has been ongoing in South African mines. Production cuts have been made and many palladium mines have become unprofitable in the region. Furthermore, stockpiles in Russia are dwindling leading to the possibility of a palladium shortage not seen since 2000.

ETF Securities Physical Palladium Shares Click to enlarge

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.