A mixture of long-term trends and supply shortages has caused the palladium price to rise by 58 percent since the beginning of the year. But does the price increase continue?
The price of palladium broke the $ 2,000 an ounce mark for the first time. The precious metal has registered a price increase of 58 percent since the beginning of the year, and prices have even doubled since August 2018. The recent price record is due to supply shortages in South Africa, the second largest palladium producer in the world. There, the mine products were temporarily discontinued due to a power failure. It looks like nothing can stop the upward trend in palladium at the moment, precious metals expert Daniel Briesemann from Commerzbank told Bloomberg news agency a few days ago. “Although we consider the price increase to be exaggerated, there is no end to the rally in sight.”
In the long term, too, the price will be fueled by a combination of high demand and low supply. Palladium is used in catalytic converters in gasoline engines, 85 percent of the metal ends up there. Because of the increasingly strict emissions regulations for cars, more and more of the metal is needed. At the same time, there is an increasing lack of easy-to-process resources. Industry-leading Johnson Matthey predicted a supply deficit of 800,000 ounces in 2019 in May. Overall, there has been a supply deficit on the palladium market for eight years.
However, experts’ opinions diverge as to the medium-term outlook for the palladium price. “It does not appear that there will be any new offers on the palladium market at a reasonable price in the near future,” said Tai Wong of the Canadian investment bank BMO Capital Markets. The price increase could therefore continue, albeit possibly with larger interim resets and fluctuations. Citigroup also believes that prices may rise another 25 percent to $ 2500 in the coming months.
The analysts surveyed by the Bloomberg data service, on the other hand, assume on average that the listing will collapse by around a quarter to $ 1,500 in 2020 due to the currently very high prices. The Dutch bank ABN Amro expects a particularly sharp correction there, which expects the palladium price at $ 1,125 at the end of 2020. Commerzbank also anticipates a significant drop to $ 1,500. They assume that speculative investors’ high expectations of rising prices should be disappointed, which should dampen the mood on the palladium market and depress prices. In addition, there is a risk that the situation on the car market will deteriorate, where a large part of the palladium ends up in catalysts. It assumes that sales of cars with petrol engines in Europe will decline due to stricter emissions regulations. Commerzbank also considers it conceivable that Donald Trump could raise US tariffs on cars and auto parts in 2020, which should also put a damper on the market. “Despite the continuing supply deficits, the strong price increase for palladium is, in our opinion, not justified,” wrote Commerzbank today in a market commentary on the record high.