Palladium price surges toward record high amid supply shortfall

Image: Nornickel

Palladium pushed toward to a record high as rebounding automaker demand and supply disruptions look set to keep the market in a deep deficit.

The metal has climbed 15% this year, building on five years of gains. Palladium has benefited as stricter environmental standards boost loadings of the metal in catalytic converters used to curb pollution from gasoline-powered vehicles. Supply disruptions last month at Russian mines run by MMC Norilsk Nickel PJSC have exacerbated supply concerns, even after the world’s largest producer has since said the recovery is proceeding faster than originally planned.

“A series of positive supply and demand factors have been driving up prices,” said Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd. “That at the margin will also have sucked in some speculative trend-following money. Also, more generally, palladium had been range-bound for a while until mid-March and the “catalyst” of Russian supply disruption.”

Citigroup Inc.’s base case is for prices to reach $3,000 during the next three months. They could even reach $3,500 if disruptions at Nornickel’s Siberian mines turn out to be worse than the company has estimated, the bank said.

UBS Group AG is forecasting a deficit of about 1 million ounces in 2021, which would be 10th consecutive annual shortfall.

Spot palladium rose as much as 2.6% to $2,849.33 an ounce, less than $35 below the record set in February 2020. The metal traded at $2,820.25 as of 10:48 a.m. in New York.

Restocking by automakers, expected to take place in the second half of this year and next year, after a chip shortage-induced destocking could boost demand for palladium.

The “‘catch up’ when chip supply recovers and auto stocks are re-built will be significant This will be bullish for palladium physical balances especially,” Citigroup analysts including Oliver Nugent said in a note. It is likely that speculative buying prices this recovery ahead of time, they said.

“A sizeable restock seems likely once possible given that autos inventories are already extremely low, and improved to vaccinations, sales, and travel are alleviating the reasons OEMs were previously cautious to raise stock levels,” the Citigroup analysts said.

A scenario in which half of prior stocks are rebuilt over six months would represent about a 5% annualized total demand increase for palladium, while a bull case in which all prior stocks are rebuilt would be worth about 10%, the analysts said.

In other precious metals, gold and silver fell while platinum advanced.

(By Ranjeetha Pakiam, Eddie Spence and Yvonne Yue Li, with assistance from Yuliya Fedorinova)

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