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Investors Can’t Get Enough of the Metal Used to Cut Vehicle Pollution (Bloomberg)

Azhar Razak

By Eddie Van Der Walt

  • Palladium futures rose more than any major commodity last year
  • Shortage of metal has persisted since 2012, Metals Focus says
 Last year’s best performing commodity hasn’t lost its touch. Spot palladium prices have soared above a record that stood for 17 years.
 That followed its best year since 2010 on growing demand from carmakers for the metal used to reduce vehicle pollution. While palladium’s supported by a lack of supply, the risk of a correction increases as prices rise.
 

 

Palladium reached a record $1,139.68 an ounce on Monday, extending a 3.6 percent gain Friday, when it hit an all-time high that had stood since 2001.

“The rally looks a bit overdone, but that doesn’t mean it can’t run another $150 or $200,” said Nikos Kavalis, director of research firm Metals Focus Inc. “There’s tremendous demand from the Far East.”
 The world hasn’t produced as much as it uses since 2012, Kavalis said, with last year’s shortage rising to 1.6 million ounces. The metal is a byproduct of platinum and nickel mining, meaning shortages are hard to address, he said.

Growing Shortage

Palladium has been in deficit since 2012

While carmakers can substitute palladium with platinum, retooling factories is expensive and the metal makes up a relatively small part of their costs.

”I don’t think auto-producers are going to switch away from palladium into platinum unless they are comfortable that prices of palladium will remain at a premium,” said Bernard Dahdah, a commodities analyst at Natixis SA in London. “It is not a quick process to switch.” Prices could drop back to $1,040 an ounce as speculative demand eases, he said.

Longer term, demand may subside as electric vehicles gain market share.

Demand Share

The vast majority of palladium ends up in cars

Source: Bloomberg

Image Courtesy: Bloomberg

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