Told-you-so rout hammers palladium in worst week since 2016

Palladium is heading for the biggest weekly decline in more than three years as investors’ focus turned to demand amid concerns over slowing global growth.

The metal used in auto catalysts to curb emissions sank 17 percent in three days from Tuesday before paring losses, putting it on course for an 11 percent weekly drop. The metal hit an all-time high on March 21 after a massive rally that spurred predictions a reversal was inevitable, and led hedge funds to cut bullish bets for a fourth week.

With the palladium market expected to be in deficit for an eighth year, manufacturers of gasoline vehicles have scrambled to get hold of supplies to meet stricter standards for pollution control.

Still, analysts surveyed by Bloomberg last week saw the metal ending the year in the $1,300s an ounce, partly as shortages are priced in and as car sales in key markets slow. As prices scaled new highs in the first quarter, Saxo Bank A/S, Commerzbank AG and UBS Group AG were among banks warning of the potential for substantial pullbacks. Spot palladium traded at $1,374.95 an ounce at 11:04 a.m. in London, after dropping 7.3 % Thursday and almost 6% the day before

“Much of palladium’s doubling in price over the last eight months was driven by supply concerns, and these are well-explored,” Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty, said in an email. “Naturally the momentum attracted speculative as well as trade support. The ongoing contraction in China car manufacturing and a recent string of weaker macro data has shifted focus to the demand side of palladium markets, and at the moment selling is begetting selling.”

Spot palladium traded at $1,374.95 an ounce at 11:04 a.m. in London, after dropping 7.3 percent Thursday and almost 6 percent the day before. It’s down 11 percent in March, but still heading for a fourth quarterly gain after prices hit an all-time high of $1,614.88 last week.

Prices entered a sharp decline on Wednesday, shortly after Anglo American Plc Chief Executive Officer Mark Cutifani told the FT Commodities Summit that the market was in a bubble. He expressed confidence, however, that the rally was on a firm footing, because consumers aren’t yet looking to substitute palladium for other metals like platinum or rhodium.

After this week’s slump, some analysts are predicting a rebound. Ole Hansen, head of commodity strategy at Saxo Bank, attributed the drop this week to “dismal liquidity and an extended speculative involvement.”

“Very tight fundamentals have supported palladium and will continue to provide support,” he said. “This was ‘just’ a small correction within a strong uptrend.”

Citigroup Inc. also sees prices moving higher. “Our base case is that the market is likely to find its feet soon, bouncing back in the near term,” analysts including Max Layton said in a March 29 report. As physical indicators are still reasonably tight, the market should rebound as it “still needs to incentivize substitution.”

More than 80 percent of palladium comes as a byproduct from nickel mining in Russia and platinum mining in South Africa from producers including MMC Norilsk Nickel PJSC and Impala Platinum Holdings Ltd.

Spot gold is down 1.7 percent this week, while silver is on course for a 2.2 percent weekly decline. NOTE: Federal Reserve Bank of St. Louis President James Bullard said it would be  premature to contemplate an interest rate cut. Platinum gained 0.4 percent this week, to extend the biggest quarterly advance since early 2016.

(By Ranjeetha Pakiam and Rupert Rowling)