In the world of commodities, one metal has been making waves in the investment realm – Palladium. Rusty Delroy, the co-portfolio manager of Nero Resource Fund, has been strategically positioning himself in the palladium market, anticipating a potential upswing in the platinum group metals sector.

Palladium prices skyrocketed to unprecedented levels exceeding US$3000/oz due to sanctions imposed on Russia, the largest palladium producer globally. This surge made palladium mining companies highly profitable, but the market faced challenges with consistent supply, weak economic growth, and the rise of electric vehicles reducing demand for catalytic converters.

As of early 2024, palladium prices dropped below platinum prices for the first time in six years, signaling a shift in the market dynamics. With approximately half of the world’s palladium production operating at a loss, many companies resorted to high-grading, mining only the most profitable sections of their deposits, compromising future revenues and mine longevity.

Delroy’s unconventional investment strategy involves betting on the bottoming out of the platinum market, anticipating supply cuts and emerging deficits. He believes that entering the market at around US$950 an ounce presents limited downside risk with significant upside potential. Delroy points out the supply challenges faced by major palladium producers like Anglo American Platinum and Sibanye-Stillwater, emphasizing the critical role of cost curves in commodity investments.

On the demand side, Delroy challenges the prevailing notion that electrification will drastically reduce the need for palladium. He highlights forecasts projecting continued demand for platinum group metals in the automotive sector, especially in hybrid and range extender electric vehicles. Delroy questions the sustainability of recycling practices during previous price surges and believes that current supply forecasts are overly optimistic.

Nero Resource Fund’s investment focus extends beyond the Australian Stock Exchange to international markets, including physical palladium trading. Delroy highlights opportunities in companies like Tharisa Minerals and Bravo Mining Corp, which operate in South Africa and Brazil, respectively. Additionally, Nero closely monitors Anglo American’s platinum division, which is undergoing a strategic demerger to enhance its focus on specific commodities.

Delroy’s insights underscore the intricate dynamics of the palladium market and the potential for significant returns amidst supply challenges and evolving demand patterns. As the industry navigates through uncertainties, strategic investments and a deep understanding of market fundamentals are crucial for investors like Rusty Delroy to capitalize on emerging opportunities in the palladium sector.