LONDON—The palladium market is revving up.

After lagging behind other precious metals for much of the year, prices for the white metal—a key element in cars' catalytic converters—are pulling ahead. Since the beginning of the month, palladium has risen almost 2%, hitting a one-month high on Friday.
That's a reversal from the first quarter, when palladium fell 0.3%.
Now, investors are anticipating a squeeze—and higher prices—amid predictions that demand will outstrip supplies in 2012 following a hefty surplus last year. Consumption is expected to rise because of a strong recovery in car sales in the U.S. and China. Meanwhile, Russia has signaled it will scale back sales of palladium from its strategic stockpiles, which accounted for 9% of global supplies last year, according to estimates.
Those factors already are luring speculators back to the market, further curtailing the metal's availability to industrial users.

"It is the most attractive story" among both precious and base metals, a category that includes copper and nickel, said Nikos Kavalis, a commodity strategist with the Royal Bank of Scotland. While copper also tends to rise when manufacturing activity picks up, its price is weighed down by big inventories in China.
Palladium futures on Tuesday closed down 0.5%, to $665.15 an ounce. RBS forecasts a surge in palladium prices to an average of $900 an ounce in the fourth quarter and $1,000 in 2013.
Global demand for palladium will increase 4% both this year and next, averaging 9.51 million ounces in 2013, according to estimates by BNP Paribas.
U.S. passenger-car sales surged to 1.4 million vehicles in March, a 13% increase over the year-earlier period. In China, they rose by 4.5% to 1.4 million. Catalytic converters are used in cars to help reduce harmful emissions.
China is expected to tighten vehicle-emission standards later this year. That move likely will force car manufacturers there to increase the amount of palladium in catalytic converters, boosting the country's need for imports, according to Barclays.

Some investors prefer palladium over platinum, a "sister" metal that is also widely used in cars. Palladium is mostly used in gasoline exhausts, which are more common in the U.S. and China. Platinum, on the other hand, is for diesel-fueled cars like those driven around Europe. Demand for new vehicles in Europe remains anemic as the Continent struggles to fend off an economic slowdown.
That's mainly why Koen Straetmans, a strategist who manages commodity allocations for ING Investment Management, in late March boosted palladium exposure across the firm's 20-billion-euro multi-asset portfolio.
"The fortunes of the respective regional car markets favor palladium," Mr. Straetmans said.
Demand is recovering at an inopportune time. Russia, which accumulated palladium during the Soviet era, historically has dipped into strategic stockpiles when world demand has been strong, and its presence as a standby supplier has kept a lid on prices in the past.
But Russian officials and metals traders say those stockpiles—the exact amount is a state secret—are dwindling. Russian officials have repeatedly hinted in past months that stockpile sales are set to be slashed. BNP Paribas predicts that Russia will sell 400,000 ounces of palladium this year, 50% less than last year.
"Palladium has potentially the weakest supply outlook in 2012 of any commodity we forecast," analysts at Barclays wrote last week. They predicted palladium demand will exceed supply by 215,000 ounces this year, compared with a surplus of more than 1 million ounces in 2011.
Some analysts, though, say there are technical factors in the market that could impede palladium's rise. Even with prices up this month, futures are below the market's 55-day moving average of $681.21 and 200-day moving average of $679.51. Moving averages indicate a commodity's medium-term trend and can act as a cap on prices.
But investors largely are betting prices won't lose steam.
In the first quarter, they added $186 million worth of palladium through exchange-traded products, which are mostly backed by the physical metal, according to ETF Securities. That was the strongest quarter in terms of net inflows since the fourth quarter of 2010.



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Palladium Supply Worldwide To Remain In Deficit This Year: Survey

May 4, 2012 2:23 PM EDT

The global supply of palladium is expected to remain in deficit this year, as it was last year, Thomson Reuters GFMS said.

The consultancy, in its annual Platinum & Palladium Survey 2012, said this week that in 2011 palladium's gross deficit almost halved to 313,000 ounces.

"This owed much to a relatively subdued 2 percent rise in global fabrication, which nonetheless reached an 11-year high," the consultancy said in a statement.

This featured a solid 5 percent lift for palladium autocatalyst demand -- also an 11-year peak -- driven by firmer demand in gasoline applications and substitution-related gains at the expense of platinum.

However, the survey also showed that these gains were partially offset by weaker offtake in most other areas of palladium fabrication demand, with the heaviest losses having emerged in jewelery, principally in China, which declined to an eight-year low. 

 

As a result, this relatively modest increase in global palladium fabrication was comfortably outstripped by a 5 percent rise in supply, which climbed to a record.

"In addition to a lift of more than 3 percent in mine production, this was a function of robust gains in autocatalyst recycling which continued to benefit from the historical escalation in palladium autocatalyst demand during the late 1990s/early 2000s," the consultancy said.

Despite a smaller gross deficit, substantial liquidations from exchange-traded fund (ETF) holdings and a reduction in investors' long positions on futures markets, palladium prices still posted a record high annual average in 2011 of $734.

This followed a dramatic rise in prices during late 2010 and early 2011. And even though ast year saw palladium prices fall by 20 percent on an intra-year basis, the decline was limited to the last four months, and driven very much by profit taking, Thomson Reuters GFMS said.

"Palladium prices are also likely to benefit from the favourable investor climate towards precious metals, while the downside may be limited as palladium's demand base in autocatalyst is less exposed to Europe and is quite broadly based geographically," Philip Klapwijk, Global Head of Metals Analystics at Thomson Reuters GFMS, said in a statement.

"Overall, therefore, palladium is forecast to trade in a range of $575 to $775 through to end-2012."

The most actively traded palladium contract on the Comex closed down $8.10 to $661.35. 

 

http://www.ibtimes.com/articles/337443/20120504/palladium.htm