Industry authority Johnson Matthey estimates the supply deficit in the palladium market may leap from 163,000 ounces last year to 792,000 ounces this year.
"World automotive demand is forecast to exceed 8 million autos for the first time, with further growth in world gasoline car production and tighter emissions legislation in China, Europe and North America," wrote the firm in a recent report.
China Powers Base Metals
After palladium, the next-best-performing commodity is another metal―copper, which hit a two-year high at the end of July. Exchange-traded products such as the iPath Pure Beta Copper ETN (CUPM), the iPath Bloomberg Copper Subindex Total Return ETN (JJC) and the United States Copper Index Fund (CPER) gained between 13.5% and 14.5% this year.
Powering copper's ascent has been a potential ban by China on imports of scrap metal, scrap wire and scrap motor starting in 2018. China hopes the move will reduce pollution, but it would also decrease the supply of scrap copper in the country, and increase the demand for other forms of copper, such as refined and concentrate.
Copper isn't the only metal getting a boost from China. Aluminum jumped to a two-year high this summer, leading the iPath Bloomberg Aluminum Subindex Total Return ETN (JJU) to an 11.4% gain.
China will launch an investigation into the illegal expansion of aluminum capacity, according to a Reuters report, potentially reducing supply.
"This is all about the looming cutback to Chinese supply growth, due to both the current investigation into illegal capacity, and in the medium to longer term the expected slowdown in Chinese capacity growth," Julius Baer analyst Carsten Menke told Reuters. "Demand is not the issue—it's all about supply."