Analyzing the Potential for a Palladium Short Squeeze Amid Supply Disruption Concerns

The article discusses the potential for a short squeeze in palladium prices due to supply disruptions from Sibanye's U.S. operations, which could impact the PALL ETF. Despite the long-term bearish outlook for palladium as demand for gasoline vehicles decreases, the short-term supply situation could impact prices and speculators' positions. The author suggests a hold rating on PALL, pending Sibanye's actions.

The precious metal palladium, with its primary use in gasoline catalytic converters, has been experiencing a decline in prices due to the shift towards electric vehicles [1]. Despite this bearish outlook, recent signs of life in the palladium market, driven by potential supply disruptions, could influence the PALL ETF and speculators' positions.

Sibanye, a leading global mining company, operates a significant portion of the world's palladium mines, with its U.S. operations contributing around 5% of the global supply [2]. Recently, Sibanye threatened to shut down these operations due to financial difficulties [3]. Such a shutdown could take a substantial amount of palladium production off the market, potentially leading to a short squeeze in the futures market.

This short-term supply situation contrasts with the long-term bearish outlook for palladium as the demand for gasoline vehicles continues to decline. However, the potential impact on palladium prices and the PALL ETF necessitates a closer examination.

The PALL ETF, an investment trust holding physical palladium bars in Zurich and London, has experienced underperformance compared to other precious metals, with its shares declining by over 24% since initiation [1]. Given the potential for a supply shortage and subsequent price increase, a hold rating on the PALL ETF seems prudent, pending Sibanye's actions.

In conclusion, while the long-term decline in palladium prices is expected due to the shift towards electric vehicles, the short-term supply situation, influenced by Sibanye's U.S. operations, could lead to a potential short squeeze in palladium prices. Investors should closely monitor the developments in the palladium market and Sibanye's actions before making any further decisions on the PALL ETF.

References:
[1] PashaIgnatov. Palladium Could Supply Response Cause a Short Squeeze. Seeking Alpha. https://seekingalpha.com/article/4701477-pall-could-supply-response-cause-a-short-squeeze
[2] Sibanye Still Mining. About Us - Mining Operations. https://www.sibanyestillmining.com/en/about-us/mining-operations.html
[3] Sibanye Still Mining. Sibanye Still Mining Threatens to Shut Down US Operations. Bloomberg. https://www.bloomberg.com/news/articles/2023-03-28/sibanye-threatens-to-shut-down-us-operations-after-court-ruling