Palladium Bulls (PALL Stock) Have An Automaker Substitution Problem

Core Viewpoint - The palladium market is experiencing a significant rally driven by supply constraints, with the abrdn Palladium ETF Trust (PALL) seeing a 92% increase over the past year, reaching approximately $168, raising questions about the sustainability of this rally [1]. Group 1: Supply Dynamics - Approximately 80% of palladium demand is derived from automotive catalytic converters, making it primarily an industrial metal [1]. - The majority of global palladium supply is controlled by Russia and South Africa, where geopolitical tensions and mining challenges have led to periodic shortages [2]. - A notable rally occurred in October, breaking through two-year resistance levels, with increased trading volume indicating a recognition of the supply-demand imbalance [3]. Group 2: Market Challenges - Elevated palladium prices may incentivize producers to increase output, but there are structural challenges, including the substitution of platinum in gasoline engine catalytic converters and the long-term shift towards electric vehicles [4]. - Investors are advised to monitor automotive production data and quarterly earnings from major palladium producers for early signals of demand shifts or supply responses [5]. Group 3: ETF Mechanics - The PALL ETF tracks spot palladium prices minus its expense ratio, holding actual metal in vaults rather than futures contracts, which eliminates rollover costs but limits leverage [6]. - Recent trends indicate a compression in PALL's average daily range and a decline in trading volume, suggesting a consolidation phase rather than strong conviction among traders [6]. Group 4: Future Outlook - Over the next 12 months, it is crucial to observe whether automotive demand remains stable despite the rise of electric vehicles and whether the current supply tightness is temporary or structural [7].