While commodities like copper, lithium, and silver have been dominating headlines, and gold continues to capture the attention of investors, palladium seems to be flying under the radar. After a prolonged two-year decline from its 2022 peaks, palladium has plateaued in 2024, hovering at low levels with minimal movement. This lag is particularly evident when compared to copper and especially gold.

What Drives Palladium's Demand?

Palladium's primary uses are in:

• Jewelry and Coinage: Often used in creating white gold.

• Automotive and Machinery Industries: Essential for catalytic converters.

• Medical Instruments and Chemical Equipment: Utilized for various specialized tools.

• Hydrogen Industry: Plays a role in emerging hydrogen technologies.

However, its most crucial application remains in catalytic converters, particularly in processes like fat hydrogenation, oil cracking, and organic synthesis.

The Auto Industry's Shifting Landscape

Palladium's future is closely tied to the internal combustion engine (ICE) market. As the world moves towards electric vehicles (EVs) and hybrids, demand for palladium might wane. In response, producers are scaling back capacity and cutting capital expenditures. However, the transition to EVs is progressing more slowly than anticipated, largely due to reduced consumer spending on cyclical goods, which is evident in the widespread price reductions for electric vehicles.

The Potential for a Palladium Shortage

With the Federal Reserve potentially lowering interest rates and a new commodity cycle on the horizon, palladium could face a shortage due to reduced production capacity and underinvestment, similar to what has been seen with lithium. Despite expectations, sales of ICE vehicles are not declining as rapidly as the market had predicted. As a result, demand for palladium might remain robust in the foreseeable future.

For investors, there are limited ways to play this potential scenario. Two primary options are Anglo American, which offers a diversified commodity portfolio, and the more focused, yet complex, Sibanye Stillwater, which provides a direct exposure to palladium.

In conclusion, while palladium may not be garnering the same attention as other commodities, its unique position in the automotive and industrial sectors could make it a valuable asset in the next commodity cycle. Investors looking for opportunities in overlooked areas might find palladium to be a hidden gem with significant potential for growth.