Investing in palladium: what you need to know
Palladium is the most expensive of the world’s ‘top four’ precious metals – namely gold, silver, platinum and palladium – an accolade earned due to its rarity and the difficulty in extracting it from the earth.
Although slightly less expensive per ounce than its rarer and lesser-known cousin rhodium, palladium is currently significantly more expensive than gold and is one of the most popular commodities to invest in. Russia and South Africa are the two largest palladium-producing countries in the world, and both are known for their rich mineral reserves.
Due to its incredibly limited use thanks to its high price, palladium has no dedicated miners focusing on it the way companies may focus on mining gold or silver. Instead, it’s mined as a secondary by product of digging for other metals.
Because of this, the chief drivers of palladium’s price are often mining related, such as the supply of the precious metal relative to its demand – something palladium investors and traders need to keep in mind.
Palladium is used in small amounts in many capacities, but its biggest consumer is car manufacturing, which uses palladium in catalytic converters, as well as in exhausts for hybrid electric vehicles. However, a significant disruptor for palladium’s popularity could be the rise of electric vehicles (EVs), which don’t require the precious metal.
See what the palladium price is doing
How to trade and invest in palladium stocks
Trading and investing in palladium stocks is how a majority of people will get exposure to the palladium industry.
Trading means that you’ll be speculating on palladium share price movements rising or falling with leveraged derivatives such as CFDs. Leverage increases your exposure, which means both profits and losses will be magnified.
Investing in means that you’ll be taking direct ownership of the palladium shares, and you’ll benefit from any increase in their price. But, investments can rise or fall in value, so you might get back less than the initial cost of your position.
Learn more about investing in shares
Top palladium stocks to watch
- Norilsk Nickel
- Sibanye Stillwater
- Anglo American Platinum
- Impala Platinum
- Northam Platinum
Norilsk Nickel
Russia’s Norilsk Nickel is the top palladium producing company in the world.. It is also among the world’s largest miners of platinum, nickel and copper.1 Norilsk Nickel has had operations severely disrupted in 2020 and 2021 so far, with waterlogging in two of its Siberian mines causing severe delays.
On 16 March 2021, the company announced that this would cause delays in mining production of three to four months, until the mines reopened. The announcement benefitted palladium, its price rising 5% to almost $2800 the same day – its highest price in a year. The same effect was not felt by Norilsk unfortunately, with shares dropping by 5.5%.
Nevertheless, Norilsk reported revenues of $15.5 billion for 2020, a 15% increase on 2019. While earnings before interest, taxes, depreciation and amortisation (EBITDA) decreased 3% to $7.7 billion and net working capital plunged 28% down to $700 million, the company remained impressively liquid, with $6.6 billion free cash flow, an increase of 36% on 2019’s figures.
Source: IG charts
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Sibanye-Stillwater
Sibanye-Stillwater – formerly known as Sibanye Gold – is one of South Africa’s biggest miners, as well as one of the largest platinum and palladium producers in the world. In fact, the company’s highly publicised merger with precious metals miner Lonmin in 2019 means that Sibanye-Stillwater now outpaces most miners in its palladium and platinum production.
In 2020, the miner had a free cash flow (FCF) of R19.9 billion – a record high and a significant increase from 2019’s R318 million. The group’s next move may well be a new bullishness on palladium as a substitute for rhodium, according to chief executive officer (CEO) Neal Froneman, which may also change the company’s significance as a palladium player.2
Source: IG charts
Source: IG charts
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Anglo American Platinum
At more than two million ounces per annum, Anglo American Platinum is the globe’s largest platinum producer. While platinum is the company’s main output, it’s also one of the world’s larger palladium producers.
Anglo American Platinum suffered some disruptions in 2020, with South Africa going into a hard lockdown in March – which shut down mining production for months. Then, a second plant outage at its platinum division also affected the company’s production of palladium. This caused a 14% drop in palladium production, as well as the production of other precious metals including platinum, rhodium and gold.
Still, Anglo American managed to increase its EDITDA by 39% to a record R41.6 billion in 2020, while the high platinum and palladium prices caused a significant R38 billion increase in net revenue to R137.8 billion and 72% increase in its return on capital employed for 2020.
Source: IG charts
Source: IG charts
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Impala Platinum
‘Implats’, as Impala Platinum is affectionately known, is a platinum metals mining company which takes its name from its chief mine in South Africa’s mining town of Rustenburg. Established in the 1960s, Impala Platinum is a big palladium producer with an international footprint, particularly since its 2019 acquisition of North American Palladium Ltd, based in Canada.
Like many of its palladium peers, Impala Platinum enjoyed the fruits of skyrocketing palladium prices. In its December 2020 interim results, the company reported record high headline earnings of R14.4 billion (an increase of 328%) and 107% revenue increase to R58.12 billion.
Unlike most palladium miners, Impala Platinum saw an increase in production figures for 2020, thanks to the inclusion of North American Palladium Ltd. The miner enjoyed a 10% increase in 6E production (the umbrella term for platinum and its five other ‘noble’ metals) and foresees a similar 2021 overall, stating that 'persistent market tightness in rhodium and palladium [is] expected to support elevated pricing in the medium term.'
Source: IG charts
Source: IG charts
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Northam Platinum
Northam Platinum in South Africa is the country’s fourth largest platinum producer and a big player in the palladium market. Whereas most other miners on our list broadly mine the 6E metals, Northam Platinum focuses specifically on palladium, platinum and rhodium.
In March 2021, Northam announced that it would be ending a strategic partnership with smaller platinum producer Zambezi Platinum by buying back R2 billion worth of preference shares. Northam’s CEO, Paul Dunne, also stated at the time of the announcement that he hoped the move would be accompanied by a doubling of production to one million ounces of PGMs (‘platinum group metals’ or the rare earth metals, such as platinum, palladium and rhodium) a year.
In 2020, Northam’s normalised headline earnings increased by 73.6% to R3.3 billion, while operating profits rose 75% to R5.2 billion. In spite of the pandemic, the company announced that it was running at 'close to full' capacity, with a corresponding 15% 2020 increase in refined metal production. In March 2021, the company also announced the 'first meaningful metal production' from its Booysendal South mine, which could have a significant impact in its palladium output going forward.
Source: IG charts
Source: IG charts
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Palladium industry: what’s the outlook
There has been a deep deficit of palladium for some time, with demand for the precious metal far higher than the supply. The Covid-19 pandemic has only exacerbated this, thanks to widespread disruptions for mining – most notably Norilsk Nickel’s woes and lockdowns in South Africa – resulting in a reduced global supply.
As a result, palladium has been courting record highs for some months now, having climbed more than 15% in the first four months of 2021. In fact, spot palladium prices spiked as much as 2.6% to $2849.33 an ounce in April 2021, less than $35 below the record set in February 2020.3
Although this makes for a fairly bullish outlook in palladium’s price in the medium term, tides may be turning. Longer term signs may be pointing to an ongoing acceleration in the popularity of EVs. This is because pressures are mounting internationally to reduce carbon footprints worldwide and one very high profile way to do this is encourage the production and purchase of EVs. Should the EV movement gain critical mass, palladium would lose its biggest demand driver.
However, another factor to note is the widespread use of hybrid electric cars (such as Priuses, whose production demands a fair amount of palladium), which may counterbalance EVs’ disruption of palladium demand for some time.
Top palladium stocks summed up
- The Covid-19 pandemic put palladium production on hold for many global suppliers, leading to record highs in the metal’s price
- One of the best ways to get exposure to palladium’s current prime is to take a position on the stocks in palladium companies – either through trading or investing
- With demand seemingly set and supply far less certain, the future looks bright for palladium – but there may be a disruptor on the horizon in the form of electric vehicles, which would see palladium’s biggest consumer, motor manufacturing, requiring far less of the rare metal
Footnotes:
1 Norilsk Nickel press statement
2 Mining Weekly
3 Bloomberg
