Palladium futures remain high amid supply restriction fears

May 22, 2014

London (May 22)  Palladium futures matched Tuesday’s highest price since 2011 and investors are holding a near-record amount in funds backed by the metal on concern that supplies may be further restricted.

Palladium exchange-traded product assets reached a record 86 metric tons on 19 May and were valued on Wednesday at $2.29bn.

Prices have risen 16% this year after mine workers downed tools in January in South Africa, the second-largest producer.

Its three biggest platinum-mining companies and the main union at their South Africa operations started mediation on Wednesday to try and end the strike.

Supplies are being restrained and car makers are using more palladium and platinum in pollution control devices. Shortages of the metals will be the most in more than three decades this year, Johnson Matthey said on Tuesday. The US and the European Union have vowed to tighten sanctions on Russia, the top palladium supplier, if it disrupts Ukraine’s May 25 election. Russia was preparing retaliatory measures in response to possible wider sanctions, said Prime Minister Dmitry Medvedev.

"The potentially devastating long-term damage to the industry amid ongoing strikes in South Africa is to in any case keep a floor under platinum-group metals prices," Andrey Kryuchenkov, an analyst at VTB Capital, wrote on Wednesday in a report. "Palladium is far better positioned to benefit from rising US and China car sales."

Palladium for June delivery added 0.3% to $828.10 an ounce by 7.44 am on the New York Mercantile Exchange. It touched $830, matching yesterday’s highest price since August 2011. Futures trading volume was double the average for the past 100 days for this time of day. The metal for immediate delivery rose 0.3% to $828.19 in London.

Platinum for July delivery rose 0.5% to $1,476.40 an ounce in New York. South Africa is the biggest producer of the metal. Holdings in platinum exchange traded products reached an all-time high on May 19 and palladium assets were little changed on Wednesday.

Russia said troops being withdrawn from areas bordering Ukraine will be back in their bases by June 1.

This was after the US said there was not yet any sign of a pullback. Russian President Vladimir Putin announced a withdrawal two days ago.

US Vice-President Joe Biden repeated a warning to Mr Putin not to interfere with the presidential vote.

"We’ve still got the Russian situation bubbling away in the background," said James Moore, an analyst at FastMarkets.

Gold gained 7.2% this year, partly as the standoff over Ukraine spurred demand for a haven. Prices slumped 28% last year on expectations of less US stimulus as the economy strengthens. The Federal Reserve will today release minutes from its last meeting, when bond-buying was pared for a fourth time.

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