The Strategist

Palladium prices hit record high

02/26/2019 - 02:48

On Monday, the world market prices for palladium updated the historical maximum, rising to the level of $ 1,534 per troy ounce. As a result, the value of this metal exceeded the value of gold by $ 200 per ounce. The rise in prices contributes to the shortage of metal against the backdrop of record demand from the automotive industry.

moneymetals via flickr
moneymetals via flickr
On Monday, the cost of palladium updated the historical maximum, set in the middle of last week. According to Bloomberg, during the day, the price of the precious metal rose 2.2% to $ 1,534 per troy ounce. The almost continuous rise in prices for palladium continues for the sixth month in a row, and during this time the metal has risen in price by more than 80%. In less than two months, the metal has increased in price by more than 20%. Other precious metals are also increasing in price, but at a significantly slower pace. Since the beginning of the year, gold has risen in price only by 3.5%, to $ 1,328 per ounce, platinum - by 7.7%, to $ 855 per ounce, silver - by 2.6%, to $ 15.9 per ounce.

The outpacing rates of growth in the value of palladium are associated with a shortage of metal in the world market, which is caused by high demand for it from the automotive industry. Today, 80% of the produced palladium is used in the automotive industry. Metal is used in the manufacture of filters emissions of gasoline engines. Demand for them has risen sharply against the backdrop of the rejection of diesel engines in Europe, the cause of which was the tightening of environmental standards. In the European Union, the Euro 6 standard has been in force since 2015, and in September 2017, its gradual tightening began. As a result of measures taken only in 2018, the production of diesel engines fell by 9%. According to Johnson Matthey, palladium consumption by the automotive industry increased by almost 3% last year - to a new historical high of 8.66 million ounces. In addition, investors fear a decline in production from the largest producers in Russia and South Africa.

Johnson Matthey experts predict a continuing supply shortage over the next eight years due to the growing demand for metal from manufacturers of automotive catalysts. In their opinion, companies will be forced to increase metal purchases amid stricter exhaust emission requirements. “Against the background of positive sentiment that dominates the market, the short-term risks of price changes are biased towards growth. However, on the horizon of twelve months, we still expect a price at the level of $ 1 thousand per ounce. We maintain a neutral view on palladium due to an unfavorable combination of risk and profitability,” said commodity market analyst Julius Baer Carsten Menke.

Analysts say the main risk for the palladium market is the development of technologies to replace it with platinum. Holding palladium prices at such high values can force manufacturers to look for an alternative to it. In turn, this can be a fundamental factor in reducing its value. However, this process is not fast and can take, according to analysts, from one and a half to two years.