Palladium tops $2,000 in record-breaking rally before gains ebb

The only way for palladium is up. Image courtesy of Aaron Chung via Flickr

Palladium rose above $2,000 an ounce for the first time, extending an annual advance powered by a sustained global deficit, before slipping as profit-taking emerged.

Palladium has gained as much as 59% this year, with market watchers saying the shortfall will be hard to fill. That’s great news for producers of the metal, used mainly in autocatalysts, which have seen their shares surge.

Citigroup forecasts the move upward has the potential to see prices gain to $2,500 in the first half of next year

No. 1 miner MMC Norilsk Nickel PJSC has climbed 50% in 2019. The effect has been even more dramatic for South African platinum producers, which dig up palladium alongside their primary metal. The FTSE/JSE Africa Platinum Mining Index has tripled this year, the biggest-ever annual gain.

On the other hand, higher prices don’t affect carmakers too much, because palladium is only a small part of the overall production cost, said Ole Hansen, head of commodity strategy at Saxo Bank A/S.

“The mining companies and speculators both reap the reward from the continued surge,” he said.

Spot palladium climbed as much as 1.1% to $2,000.35 an ounce, before dropping to $1,947.07 at 11:58 a.m. in New York.

The $2000 level “proved to be a nut hard to crack at this stage,” Hansen said, who saw “profit taking” emerging.

“You’re seeing it push higher and higher and hit these resistance levels and pull back,” Kieran Clancy, assistant commodities economist at Capital Economics, said by phone Tuesday. “The fundamental story really hasn’t changed.”

Palladium has surged as tighter emissions rules spurred demand, while supply hasn’t yet been able to respond. Citigroup Inc. forecasts the move upward has the potential to see prices gain to $2,500 in the first half of next year. Power outages in major producer South Africa hurt mine operations this month, fueling gains.

“In most cases, the cure for high prices is high prices, but not for palladium,” Tai Wong at BMO Capital Markets said before the $2,000 level was taken out. That refers to the notion in raw materials that a rally induces fresh output, triggering the conditions that then roll back the advance.

“There doesn’t seem to be any new, ready supply at any reasonable price,” Wong said. “So it could continue to move higher from here, though perhaps with more volatility.”

Many raw materials gained this week after the breakthrough between the U.S. and China to forge an initial trade agreement, bolstering prospects for global economic growth and auto demand.

Other precious metals were mixed Tuesday, with gold for immediate delivery little changed, while silver and platinum declined.

(By Elena Mazneva and Justina Vasquez, with assistance from Luzi Ann Javier)

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