Palladium market hits low as Chinese auto sales slow

Tokyo (Jun 19)  Palladium futures dropped to a 16-month low below $720 per troy ounce during pre-market trading in New York Friday, amid falling demand due to stagnant auto sales in China.

Prices have fallen more than $80 from an early May high. On the Tokyo Commodity Exchange, the metal fell to 2,872 yen ($23.16) per gram on Friday, a drop of 28 yen from Thursday and the lowest price since early April. Though gold rose Thursday on perceptions that any rise in U.S. interest rates will be gradual, palladium continued its six-day decline in New York.

The precious metal is used chiefly in catalytic converters for auto exhaust, and demand for the devices in China is expected to slow as the country's auto market declines. New car sales in China fell during May from the same month last year, and the palladium market has been in decline since June 11. China estimates that it consumed 65 tons of palladium during 2014, rising slightly above North America to become the leading consumer of the metal. Although U.S. auto sales remain brisk, investors' attention has shifted halfway around the world.

 South Africa and Russia lead world production of the metal, and despite recent worries over high wages and energy costs in South Africa, supply from both nations has surged as their currencies weaken and producers seek to hold down cost burdens through high production.