Size of the Palladium Market
How big is the palladium market? It should be easy to answer this question, right? After all, the palladium market is a market for palladium. But the data on above-ground stocks is scarce. In 2014, we estimated it to be between 7 and 26 million ounces. According to the LBMA, in 2012, there were about 20 million ounces of palladium in existence (now it is probably less). At today’s dollar price (around $1,100 per ounce, as of November 11, 2018) that comes to about $22 billion. Not bad – it’s actually larger than in the case of platinum ($1.9 billion) but it’s significantly smaller than in the case of gold (about $7.3 trillion) or even silver (about $3.5 trillion). They differ by a few orders of magnitude.
However, the annual supply and demand in 2017 was about 9 million ounces, so the value of the annual production (or consumption) of platinum amounts to $9.9 billion. It clearly shows that the stock-to-flow ratio is lower than in the case of gold or silver, implying that palladium is mainly an industrial metal.
Hence, only a tiny percentage of palladium is used as an investment. In 2016, investment demand remained actually deeply in negative territory, due to the heavy profit-taking by ETF holders occurring for a second consecutive year: in 2015-2016, we saw over 1.3 million ounces of palladium disinvestment. As a consequence, by the end of 2016, total palladium ETF holdings had declined to 1.65 million ounces. They would be worth $1.8 billion now.
But we can also interpret and measure the size of the palladium market in terms of its liquidity. According to the London Metal Exchange, about 7,930 ounces of palladium worth $8.7 million were traded daily on average in October 2018 in the London market. If we add futures and silver ETFs, the trading volume would be even higher, but still rather limited compared to gold or even silver.
To sum up, the palladium market is small and rather does not constitute an important financial market in the modern economy. Given its size and liquidity, palladium is clearly not a monetary asset, in contrast to gold or even silver, but an industrial metal. Limited holdings of palladium imply that its price is much more sensitive to the balance of the annual demand and supply.