China’s war on pollution to push palladium higher still

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The platinum price remains 8% higher year to date while palladium futures continue to trade near record levels, up some 22% in 2014.

While the end to the devastating strike in South Africa will see roughly 10,000 ounces of platinum and 5,000 ounces of palladium find its way onto the market in coming months, fears regarding sanctions against Russia over its intervention in Ukraine has kept prices on the boil.

South Africa and Russia combined account for close to 80% of global supply of palladium and 70% of platinum output which are mainly used to clean emissions in automobiles.

A new research note from ETF Securities suggest longer term the PGM industry will also find support from solid underlying fundamentals.

The London-based institutional advisers say rising demand from China and other emerging markets is causing “a structural shift” in PGM demand as these countries tighten emissions controls:

“China is now the world’s largest auto market, selling about 20 million vehicles a year, mostly gasoline, which utilize greater amounts of palladium. H1 data on China palladium imports showed an increase of 30% yoy from 2013.

“China imports alone are on pace to absorb over 14% of global palladium mine supply in 2014. With severe pollution problems and PGM loadings per vehicle about half that of the US, China palladium demand has the potential to shift even higher.”

Platinum futures listed on Nymex were trading $1,489.50 an ounce on Tuesday, while September palladium contracts edged higher again to $883.80 an ounce.

Palladium futures trading on New York’s Nymex hit an all-time record price of $885 less than a fortnight ago, but the London fix for the precious metal peaked more than a decade earlier.

On January 26, 2001 palladium was fixed at $1,090 an ounce, but then retreated sharply to $319 by October that year.

Platinum on the other hand is nowhere near record levels, the precious metal hit $2,253 in March of 2008 and has never been above $2,000 since that year.

Image by Marianna