Palladium tops US$1600 as metal sets new highs on supply shortage, Bloomberg reports

The price of the metal – mainly used in autocatalysts in gasoline vehicles – has almost doubled from a recent low in August. Demand has remained robust as manufacturers scramble to get hold of palladium to meet more stringent emissions controls, particularly in China, even as auto sales in key markets slow.

With the palladium market expected to be in deficit for an eighth year, speculators have piled back in, and a robust borrowing market for the metal prompted investors to pull supplies from exchange-traded funds and lease them out. Fiat Chrysler Automobiles NV’s recent recall of about 863 000 vehicles that violate US standards could spur even more demand.

“Metal for immediate delivery remains in extremely short supply,” said Jonathan Butler, precious metal strategist at Mitsubishi Corp UK “The short-term supply outlook doesn’t look any better, particularly in South Africa. Automakers are still finding ways to thrift but it’s getting more difficult with ever stricter emissions targets.”

The metal’s rally is even stirring debate about whether automakers can make the switch to cheaper platinum to help control their costs.

“We remain bullish on palladium since the physical palladium market remains tight and it will take years to substitute,” analysts at Citigroup Inc. said in a 19 March report. “However, at these higher prices we are acknowledging the increase in downside risks relating to potential substitution headlines.”

Palladium climbed as much as 1.4% to US$1601.52 an oz., and has increased 26% this year. Bank of America Merrill Lynch earlier this month raised its average forecast for 2019 to US$1800, suggesting that prices could reach as high as US$2000.

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