Palladium Supply/Demand Fundamentals Remain 'Robust': Metals Focus

April 17, 2019

New York (April 17)  Metals Focus remains upbeat on palladium's prospects despite the recent sharp sell-off from record highs, with the consultancy saying the rally was fueled by genuine tight supply/demand fundamentals and not just speculative frothiness.

"Despite the recent fall, we remain positive about palladium prices," Metals Focus said. "Even the YTD [year-to-date] price fall can be taken as less brutal if reviewed in chronological terms; the April low was only a two-month low and so a pause for breath was perhaps needed before the rally reignites."

Spot palladium hit an all-time high near $1,615 an ounce on March 21, before losing some $270, or 17%, in a week. The metal ultimately found support in the mid-$1,300s, Metals Focus said. As of 10:25 a.m. EDT, spot metal was up $25 for the day and trading at $1,271.95 an ounce.

In addition to profit-taking, prices were dinged by poor car sales data in China and the U.S., which weighed on investor sentiment, Metals Focus said. The metal is used for catalytic converters in motor vehicles. Supply tightness also abated some, as reflected by a fall in leasing rates, which Metals Focus said dropped to low single digits in March. They had not been this low since October.

Meanwhile, analysts pointed out that the net-long, or bullish, positioning of money managers on March 19 amounted to just 1.3 million ounces, down slightly from the end of 2018 and well below the record of record 2.8 million from early 2018. Furthermore, redemptions in palladium exchange-traded products have been "modest," down by 47,000 ounces, or just 6% from the end of 2018, as of Metals Focus' report.

“Even with the sluggish performance of both the Chinese and U.S. auto markets in early 2019, auto-catalyst demand will almost certainly rise this year, due to higher vehicle sales elsewhere and tightening emissions legislation...,” said Metals Focus, pointing out that the new rules mean more loadings of platinum group metals in catalysts.

“Despite conjecture over future substitution from palladium to platinum, we are not aware of any solid plans to effect this, even in the medium term. In addition, even though palladium total supply remains expected to rise 4% this year, that cannot explain recent price weakness as, if anything, the risk of greater supply disruption in South Africa has grown. As these supply gains will not be sufficient to outstrip total demand, the palladium market will remain in deficit for the eighth year in a row.”

Since the start of this decade, the cumulative deficit is expected to surpass 5 million ounces as of the end of this year, Metals Focus said. This in turn means that above-ground stocks will have fallen by almost 29% over that period. They are expected to fall below 13 million ounces by year end, equivalent to some 14 months of fabrication demand, compared to 24 months at end-2010, Metals Focus said.

“As a result of these fundamentals and speculative investors’ limited exposure, we see little scope for a marked correction in palladium prices from current levels in the coming months," Metals Focus said. "While there is room for a further pullback, this would not be expected to last long as bargain hunting quickly emerges. That said, we could also see a period of more range-bound conditions persist, particularly if advance purchasing by Chinese end-users in recent years means there is little appetite to raise inventories at a time when the local car industry is struggling.”


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