Palladium Climbs on Fears About Russian Supplies

August 29, 2014

New York (Aug 29)  Palladium closed above $900 a troy ounce for the first time in more than a decade, extending its recent rally as rising tensions between Russia and Ukraine stoke fears about supply.

Palladium for December delivery, the most actively traded contract, rose $11.45, or 1.3%, to settle at $909.55 a troy ounce on the New York Mercantile Exchange. This was the highest settlement price since Feb. 21, 2001.

Russian President Vladimir Putin on Friday accused Ukraine and its Western allies of backing peace talks as a cover to continue military operations against pro-Russia militants in Ukraine's east. Mr. Putin shrugged off allegations that Russia is funneling troops into eastern Ukraine to support the rebels.

Leaders in the U.S. and Europe said they would consider new sanctions against Russia, with the European Union slated to discuss the situation in Ukraine at a summit in Brussels on Saturday.

Palladium prices have rallied 27% since the start of the year, with the escalating conflict prompting worries that supply will be caught in the crossfire of economic sanctions between Russia and the West, with either side holding up access to the metal. Russia is the world's top palladium producer, contributing roughly 40% of the world's supply.

"If Russia stops shipping, you're talking about a supply-side disaster," said Philip Gotthelf, president of Equidex Inc., a commodities investment management firm in Closter, N.J. Mr. Gotthelf has recommended his clients buy palladium on any pullbacks and expects prices to reach as high as $940 to $945 an ounce.

Palladium prices drew strength earlier this year as a protracted mine-worker strike in South Africa, the world's second-largest producer, reduced supply.

The last time palladium traded above $900, in 2001, prices had rallied after Russia halted its exports of the metal.

"Everyone who's trading palladium right now is someone who remembers 2001," Mr. Gotthelf said.

Palladium is primarily used to scrub pollutants from car exhaust, with the automotive sector accounting for 73% of global demand, according to specialty chemicals maker  Johnson Matthey  JMAT.LN -0.50%     PLC. Car sales in China, Europe and the U.S. have marched higher this year, a signal that demand for palladium is on the rise.

In the past, any shortfall in palladium supply would often be supplemented by Russian government sales, but those shipments have been patchy. The Kremlin has been slowly selling off a large stockpile of palladium amassed during the Soviet era.

As recently as 2010, Russian government sales accounted for 14% of world palladium supply. But as the government stockpile eroded, those sales have began to peter out.

"There's an expectation that a lot of the Russian stockpile has been largely exhausted," said Jim Steel, head precious metals analyst with  HSBC.  HSBA.LN +0.77%    

Palladium futures have already exceeded his upper price target of $900 an ounce for 2014, Mr. Steel said.

"But I don't see the market significantly pulling back any time soon," he said.

In other markets, gold prices eased from a one-week high as pressure from a stronger dollar prompted some investors to lock in gains on the recent rally.

Gold for December delivery, the most active contract, settled $3, or 0.2%, lower at $1,287.40 a troy ounce on the Comex division of the Nymex.

Source: WSJ

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