Palladium has usurped gold as the most valuable precious metal, underlining its status as one of the year’s best performing commodities.
The metal surged to a high of $1,257 an ounce on Wednesday, surpassing the price of gold for the first time since October 2002.
The price of palladium, which is used in catalytic converters in petrol vehicles, has risen 13 per cent over the year as European consumers desert diesel.
In addition, carmakers in China are preparing to meet new emissions standards starting from next year, known as Euro 6, which will require more palladium to filter out harmful emissions. Palladium is also used in hybrid cars, which use an engine as well as a battery.
While car sales in China, the world’s largest automobile market, are expected to decline for the first time since the 1990s, palladium demand is forecast to hit a record because of the tougher emissions regime.
“Notwithstanding the slowdown in sales [in China] this year it’s still looking like a good year for palladium demand there,” Jonathan Butler, an analyst at Mitsubishi, said. “Even if we do see a slowdown because of domestic concerns, there are still very strong growth prospects in the long term.”
Analysts at the consultancy Metals Focus said global automotive demand for palladium would reach a record high of 8.5m ounces this year. “This is the key reason why total palladium demand has grown uninterrupted since 2010 and has also outstripped global supply,” they said.
The palladium market has been in a deficit for the past seven years, leading to a drawdown of stocks on the Nymex exchange in New York and from stockpiles in Russia, Mr Butler said.
So far, industrial demand has been met from sales of palladium-backed exchange traded funds — which hold physical stocks — but ETF holders may no longer be willing sellers. A total of 503,476 ounces of palladium held in ETFs has been sold this year, leaving a total of 670,982 tonnes available, according to Reuters.
At the same time, Metals Focus expects the palladium market to be in a deficit of 1.2m ounces this year.
Palladium is mostly mined in Russia and South Africa alongside other metals such as platinum and rhodium, but supply in both countries has been constrained by a lack of investment.
Norilsk Nickel, the world’s largest producer of palladium, has said its supply of palladium will remain roughly flat until 2020 and new projects will not come into production until after 2025. Meanwhile, growth in hybrid vehicles will result in an extra 2.8m ounces of demand for the metal between now and 2025, the company said last month.
Palladium’s performance comes during a lacklustre year for gold, which has fallen by 6 per cent this year to trade at $1,236 a troy ounce. Investors have shunned the metal this year thanks to a rising US stock market and concerns about further interest rate rises, which make gold less attractive, since it provides no yield.
Source: Financial Times