Aberdeen Standard Physical Palladium ETF (PALL) Becomes Primary Geopolitics Hedging Tool

Shares of several companies in the auto & auto component space, including Ford Motor Company (F), Fisker Inc (FSR), General Motors Company (GM), Tata Motors Limited ADR (TTM) and even Tesla (TSLA), are all underperforming for the week as stocks pull back on continued volatility amid Russia–Ukraine military conflict. The conflict has weighed on this industry’s stocks even more than on stocks and economic sentiment in general.

Russia has been responsible for nearly a half of world’s palladium output – a precious metal exclusively used in production of automotive catalyst converters. Carmakers’ well-known main problem, current supply bottlenecks in microchips – now will ultimately extend to accessibility of this metal for production of other car’s vital part, without solving which global car production will simply fail. The current auto chip shortage started primarily with devices – such as microcontrollers, power management, and display devices – made on legacy nodes at 8-inch foundry fab plants. The shortage then extended to other venues, with capacity constraints developing for substrates, wire bonding, passives, and materials, all of which were a part of the supply chain beneath actual chip fabrication.

According to Barron’s, the 2021 palladium market deficit stood at 829,000 troy ounces, and it will be bigger than 728,000-ounce deficit in 2020. Palladium also saw a supply deficit in 2019. Palladium has been in deficit long before the Russia-Ukraine situation reached crisis level. The risk to palladium is becoming too costly for the automotive industry, and the metal’s use in catalytic converters forces change to another more cost-effective metal such as platinum, however, it has notable replacement limitations.

According to the USGS, about 25% of palladium can only be substituted for platinum in diesel catalytic converters with that proportion potentially climbing to as much as 50% in some applications. But Russia is also the world’s second largest producer of platinum.

Aberdeen Standard Physical Palladium Shares ETF (PALL) has soared over 47% year-to-date, and it gas gained a lot more momentum recently. PALL is the perfect vehicle to hedge geopolitical concerns, sidestep any further tech drawdown, and bet on impossibility of a halt of entire global auto production.