A week in palladium: Metal slumps to five-year low
London (Aug 29) The palladium price has been drastically lagging behind other precious metals of late and the persistent slide since June is sending investors into a panic.
The metal has dropped 34% over the past three months, hitting lows last seen in 2010.
The platinum group metal (PGM) had a particularly horrendous day on Wednesday, even with the initial stock market recovery and Chinese news.
“The weakness has likely been due to a combination of several factors,” Joni Teves at UBS said.
Firstly, recent headlines on the recovery of South Africa's PGM production from last year's strike-related disruptions have impacted the metal.
“[They] showed production was massively higher in June in comparison to last year,” said David Govett, head of precious metals at Marex Spectron.
The country is the world’s second-highest palladium producer after Russia, and produced 84% more palladium in June this year than the same month in 2014.
It brings production in line with previous years and suggests the region is nearing its historic high levels of output.
Secondly, a slowdown in Chinese imports of the metal has hit palladium given its relatively large exposure to the Chinese market.
China, which accounts for around 20% of global palladium consumption, saw imports drop 42% in July from a year earlier while Chinese car sales, a driver of demand as it is used in catalytic converters, were at a 17-month low.
“Recent headlines coming out of China on negative auto sales growth, some foreign car companies scaling back operations and slower palladium imports have spooked investors and amplified the negative sentiment towards palladium,” Teves at UBS said.
Marex Spectron’s Govett pointed out there are people holding positive trading positions “who are finally realising that palladium is not the sure fire thing that they thought it was a year ago”.
As a result, they are now liquidating those positive positions instead of perhaps rolling them forward.
Positioning on Nymex, a contract market for metals including precious metals and PGMs, suggests that weakness had initially been driven by aggressive shorts with exchange traded fund (ETF) liquidations adding to the pressure.
Palladium now has the second leanest positioning within the precious metals complex behind gold.
Teves at UBS said: “This suggests that while sentiment remains frail and charts continue to look worrisome, the market may now be nearing a bottom.”
Palladium was flat at US$583 per ounce an hour into trading on Wall Street on Friday. However, palladium rebounded in late Friday trading and closed up $8 to $586.
In terms of the other metals, gold was trading at US$1,134 an ounce mid-afternoon on Friday, for a loss of US$26 on the week, but US$9 higher on the day.
Elsewhere, silver was 0.3% higher at US$14.48, while platinum gained 1.4% to US$1,014.