Auto Sales will Boost Palladium Prices

Brian Hicks

Updated July 5, 2013

June was a great month for U.S. automobiles. According to major companies like General Motors (NYSE: GM) and Ford Motor Co. (NYSE: F), June saw sales of new pickup trucks and cars shoot up to a 67-month peak.

car rentalBloomberg reports that Ford’s sales were up 13 percent, while GM’s rose 6.5 percent. Other companies saw similar upticks; Toyota Motor Co. (NYSE: TM) sales rose 9.8 percent, Honda (NYSE: HMC) saw a 9.7 percent rise, and Chrysler’s sales were up 8.2 percent.

This is great news, actually. It looks like we’re buying cars faster than at any time since 2007 (that is, before the financial crash). More importantly, the momentum established by this is key toward keeping industry sales and a general economic improvement moving along as the U.S. Federal Reserves seriously contemplates winding down its asset-buying stimulus program, which has propped the economy up for so long.

Bloomberg reports:

“The same factors are still in place: Pent-up demand is unleashing, credit is cheap and widely available, and in terms of trucks, it’s all about the economy recovering and housing starts,” Michelle Krebs, an analyst at auto researcher, said in a telephone interview.

New model sales present a particularly attractive picture, as the New York Times notes. Families are replacing older-model SUVs, businesses are purchasing pickup trucks in bulk, and the younger (and more environmentally-conscious) set is splurging on smaller compact cars.

Naturally, this prompts further anticipation of improved performance – not just in the automotive sector but across the economy – for the second half of 2013, since figures this strong point to a sweeping improvement across the board. In other words, we may be at a point where the recovery can, finally, be self-sustaining.

Automobile Purchases

Altogether, U.S. sales of automobiles grew 9.2 percent over June alone (that’s about 1.4 million vehicles). Last year’s June figures were just 1.28 million. It’s the seasonally-adjusted annual sales rate that presented the real surprise, though; June racked up almost 16 million vehicles, and this is the highest figure since 2007.

Pickup sales appear to have been particularly good—mostly driven by companies situated across the housing, construction, and energy sectors. This is an interesting point, since it highlights the comparable recovery that’s surging ahead in those sectors as well.

If you’ll recall, the housing market in the U.S. has also been showing strong signs of a burgeoning recovery. Prices are rising, refinancing activity is growing rapidly, and rates are climbing upward steadily. We’ve also noted similar gains in the construction sector.

And the energy sector has never really lacked for growth over the past few years thanks to the shale boom that’s going on across the country. It looks like the growth in those industries has finally translated into growth in the automotive sector.

However, major gains were also noted in sales of compact SUVs, smaller cars, and even hybrids. This kind of across-the-board upward trend is what could keep the recovery moving ahead.

Even battery-powered vehicles have seen major advances, and it’s more than a little likely Tesla Motors Inc. (NASDAQ: TSLA) may have something to do with that. After all, the company has recently enjoyed an absolute spurt of growth and good PR.

Palladium’s Bright Future

You as an investor should be delighted with all of this. Remember the shortage expected for platinum and palladium? Palladium is a member of the platinum group metals (PGM). And palladium is what you should be focusing your attention on.

The metal has wide applications in industries, but it is especially crucial to the automobile sector, wherein it is used in the manufacture of automotive catalysts. Given the rapid surge in auto sales I’ve described, you should surely be able to see that this means a good time for palladium. It’s cheaper than the other PGMs, making it the preferred choice. Over the last year, Thomson Reuters reported a growth in palladium usage by 5 percent.

Also, supply dropped during that same period by 4 percent. There’s a net deficit going on to the tune of about 1.12 million ounces already, and it is more than likely to increase. This is due to ongoing labor strikes in South Africa, which is the world’s largest palladium producer.

Russia is the second-largest producer, and even that nation is seeing its reserves declining. This year, Norilsk, the world’s largest palladium producer, has cut output projections by 100,000 ounces.

Booming demand and a near-guaranteed supply shortfall? What’re you waiting for?


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