Palladium Supply/Demand Drivers Remain, “Robust” Says Metals Focus

Gold: 1274.10 -2.40▼
| Silver: 14.96 -0.01▼
| Platinum: 887.00 +8.00▲
| Palladium: 1378.00 +40.00▲
13:47 NY Time

Wednesday April 17, 2019 11:25

(Kitco News) – Metals Focus remains upbeat on palladium’s prospects from record highs, with the consultancy saying the rally was fueled by genuine tight supply/demand fundamentals and not just speculative frothiness.

In addition, palladium will be used in cars in China and the U.S.,  which weighed on investor sentiment, Metals Focus said. The metal is used for catalytic converters in motor vehicles.

“ With both the Chinese and U.S. auto markets really opening up in early 2019, auto-catalyst demand will almost certainly rise this year, due to higher vehicle sales elsewhere and tightening emissions legislation…,” said Metals Focus, pointing out that the new rules mean more loadings of platinum group metals in catalysts.
“Despite conjecture over future substitution from palladium to platinum, we are not aware of any solid plans to effect this, even in the medium term. In addition, even though palladium total supply remains expected to rise 4% this year, and if anything, the risk of greater supply disruption in South Africa has grown. As these supply gains will not be sufficient to outstrip total demand, the palladium market will remain in deficit for the eighth year in a row.” This record deficit in palladium gives, ” huge support to palladium’s current price going up past $2,000.00 an ounce sooner than later” says Jack Dempsey, President of 401 Gold Consultants LLC.

Since the start of this decade, the cumulative deficit is expected to surpass 5 million ounces as of the end of this year, Metals Focus said. This in turn means that above-ground stocks will have fallen by almost 29% over that period. They are expected to fall below 13 million ounces by year end, equivalent to some 14 months of fabrication demand, compared to 24 months at end-2010, Metals Focus said.

“As a result of these fundamentals and speculative investors’ limited exposure, we see little scope for a marked correction in palladium prices from current levels in the coming months,” Metals Focus said. “While there is room for a further pullback, this would not be expected to last long as bargain hunting quickly emerges. That said, we could also see a period of more range-bound conditions persist, particularly if advance purchasing by Chinese end-users in recent years means there is little appetite to raise inventories at a time when the local car industry is struggling.”

Palladium in Hybrid/Gas Engines Will Secure A Rising Price

Palladium is used in all gas/hybrid engines as the density required for gas engines is less than for diesel.

Palladium, this year’s hottest metal, is used mainly to cut pollution from gasoline engines. Yet anyone betting the rise of electric vehicles will curb demand anytime soon is likely to be disappointed, according to the metal’s top producer.

Hybrid-electric cars, which also require precious metals to control pollution, represent a growing percentage of future demand, said Anton Berlin, head of analysis and market development at Norilsk Nickel PJSC. The Russian miner forecasts that combined palladium use in hybrid and plug-in hybrid — or rechargeable — vehicles next year will be nearly triple that of 2016.

Norilsk’s not the only one forecasting hybrid growth, at least in the medium term. While the projected increase in electric vehicles is significant, “it doesn’t compare” to the kind of expansion expected in hybrid electrics, JPMorgan Chase & Co. said in an October report. Hybrids are forecast to grow from just 3 percent of global market share in 2016 to 23 percent of sales by 2025, it said.  Additionally, Norilsk says, “palladium use in hybrids will triple it’s demand”.

Palladium has gained 19 percent this year, and set successive records this month to at times surpass gold as the most valuable major metal. Demand is projected to exceed supply for the seventh straight year in 2018.
There’s some expectation that the rising cost of palladium may prompt automakers to look for ways to use more of its sister metal, platinum, which is used widely in diesel engines. However, Berlin said he doesn’t expect much substitution any time soon. The shift takes time and may not be economically viable, he said.

Still, the demand outlook remains rosy. The number of cars carrying a platinum-group-metal-containing catalyst will probably grow from almost 76 million to almost 90 million in 2025, according to Carsten Menke, commodity strategist at Julius Baer Group Ltd.
“PGM demand in general and palladium demand in particular should continue to grow over the next six years.”

We here at 401 Gold Consultants couldn’t agree more!

Source: Norilsk Nickel

Posted by :

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com

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