Editorial: Palladium has its day in the sun

Already-strong palladium prices soared to new heights in March, with spot palladium prices topping US$1,600 for the first time on March 20, and hitting an all-time record high of US$1,604 per oz. the next day before pulling back hard to US$1,532 per oz. at press time on March 26.

The peak above US$1,600 capped a remarkable seven-month run for palladium, which bottomed briefly at US$842 per oz. in August, for a 90% gain. Looking at the five-year chart, palladium prices hit their long-term bottom of US$467 per oz. in January 2016, for a 343% gain by March 21, 2019.

Palladium is primarily used in autocatalysts for gasoline vehicles, compared to the predominance of platinum in autocatalysts of diesel-powered vehicles.

While global gasoline-powered vehicle sales have been somewhat flat of late, more stringent emission control regulations for gasoline-powered vehicles — particularly in China — have set carmakers scrambling to secure palladium supply, which has driven up palladium prices and turned palladium into the star precious metal of early 2019.

In the GFMS “Platinum Group Metals Survey 2018” released in June, the metals consultancy firm was prescient in its outlook for palladium for the full year, stating that palladium prices are “set to exceed platinum on an annual average basis for the first time in 2018 … our long-standing bullishness for this metal continues to be underscored by the growth in demand from the automotive sector, which is set to continue apace despite record prices, as substitution is not happening at present … a further prop is set to arrive from declines in mine output from the two dominant producing countries: Russia and South Africa. That said, total supply will barely change due to increased autocatalyst scrap and higher output from both Canadian and U.S. mines. As a result, GFMS expected palladium to average over US$1,000 on an annual average basis for the first time ever in 2018.”

In a March 19 note, competing metals consultancy firm Metals Focus says that for palladium, “the key issue is the ongoing and rising deficit, which has characterized the market for much of the past decade. For this year, we forecast a deficit of 789,000 oz., not far short of 2018’s estimated 993,000 ounces. As a result, between 2010–2018, above-ground stocks of palladium have fallen by a combined 4.3 million oz. from around 18 million oz. at the end of 2010 to around 13 million oz. at the end of 2018 … in our view, palladium enjoys the strongest fundamentals across the major precious metals, and therefore the ongoing stock decline underpins the strength in the palladium price,” which it predicts will surpass US$1,700 before year-end.

With the palladium market set for its eighth yearly deficit, Bank of America Merrill Lynch raised its average 2019 forecast for palladium to US$1,800 per oz., and says prices could hit US$2,000 per ounce. Analysts at Citigroup say they “remain bullish on palladium, since the physical palladium market remains tight, and it will take years to substitute.”

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