Here’s what could shoot down palladium’s price record run

February 16, 2019

London (Feb 16)  Palladium futures topped $1,400 an ounce to score a fresh record on Friday, but the metal’s epic rise may soon give way as investors question the staying power of a rally that landed prices above gold for the first time in over 16 years.

On Friday, March palladium PAH9, +1.65%  rose $21.30, or 1.5%, to settle at $1,407.20 an ounce. That was the highest most-active contract settlement on record, based on FactSet data going back to November 1984. Futures prices for the metal topped gold futures in January for the first time since October 2002.

Strong demand from the auto sector, along with tighter global supplies of the metal, have driven the price gains. In a report released this month, Johnson Matthey said 2018 total gross demand for palladium rose by 1% to 10.1 million ounces. Of that, automotive demand reached a new all-time high of 8.66 million ounces, up 3% from 2017. Palladium is mostly used in pollution-controlling catalytic converters on gasoline-powered vehicles.

Market-driving factors, including platinum mine closures, which tightens palladium production, and U.S. sport utility vehicle and truck sales, are “coming home to roost,” said R. Michael Jones, chief executive of Platinum Group Metals PLG, -0.72% 

“Palladium prices have rallied by over 70% in the past six months to a series of record highs,” said Ross Strachan, senior commodities economist at Capital Economics, in a note Friday.

But Strachan said the elevated price level is “unlikely to last.”

“It is now clear that supply rose strongly in 2018 which, coupled with the current slowdown in car sales, should cause prices to come off the boil,” he said.

Total global palladium supplies rose to 6.88 million ounces in 2018, up just over 8% from a year earlier, according to the report from Johnson Matthey.

Some analysts remain largely upbeat, if more cautious.

Jones had a few more admittedly far-fetched ideas about what could stop the runaway gains in palladium. They include a “global economic collapse to stop car sales in their tracks and a major palladium dump from a Russian stockpile,” as well as the U.S. abandoning clear air standards. He considers all of these events unlikely.

The market could also build more mines, but “this takes time,” said Jones, who remained upbeat on the outlook for palladium.

Capital Economics’ Strachan said he expects the vehicle sector to remain subdued this year. Chinese auto sales fell 2.8% to 28.08 million in 2018, according to data released in January from government-backed China Association of Automobile Manufacturers. Sales of new vehicles in the U.S., meanwhile, edged up 0.3% to 17.27 million in 2018.


Silver Phoenix Twitter                 Silver Phoenix on Facebook