Palladium tops $1,900 as South Africa power cuts fuel supply woe

Image of Palladion Athena by Wikimedia Commons

Palladium surged to a record high, topping $1,900 an ounce, after South African mining companies halted operations in response to the country’s power cuts. Platinum also rose.

South Africa, the world’s biggest producer of platinum and No. 2 palladium supplier, is facing a sixth day of rolling blackouts. State utility Eskom Holdings SOC Ltd. is struggling with breakdowns at plants and heavy rains that have soaked coal used as fuel.

“Tight supply that potentially could get even tighter due to production problems in South Africa helps provide the underlying support,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.

Palladium may “pause at $1,900 given some technical resistance, but overall the price could go higher,” he said.

Palladium rose to as high as $1,903 an ounce on Tuesday in the spot market. The metal advanced 0.9% to $1,898.50 at 9:03 a.m. in New York, according to Bloomberg generic pricing. Prices have climbed for 13 straight days, the longest stretch since mid-2014.

Platinum surged 2.7% to $919.37 an ounce. Gold and silver also rose.

Palladium’s records

Palladium has smashed through new records over the past two years because of limited supply and higher demand for the metal, which is used in autocatalysts that reduce emissions from gasoline-fueled vehicles. The car industry has boosted purchases to meet stricter air-quality rules, sending prices up 50% this year.

Automakers are not that price sensitive given how little palladium contributes to their total costs, said Hansen.

“The demand has been really strong on palladium, and any kind of hiccup in supply coming on line has been a knee-jerk reaction for palladium prices,” Phil Streible, senior market strategist at RJO Futures, said by phone Tuesday.

Citigroup Inc. sees palladium prices jumping to $2,500 by mid-2020 because of a persistent supply deficit. There are no signs of substitution with cheaper platinum or significant amounts of scrap metal coming to market, the bank said.

Analysts have been less bullish on the outlook for platinum, given weaker demand for the metal, mainly used in autocatalysts for less popular diesel vehicles. Prices are up 14% this year, helped by investment buying.

Longer term, platinum may benefit from Asia’s push for fuel-cell electric vehicles, which use platinum catalysts in the electrodes, according to a report this week from precious metals refiner Heraeus Holding GmbH.

(By Elena Mazneva and Justina Vasquez, with assistance from Ranjeetha Pakiam)

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