Palladium Hits Record Highs Backed by Strong China Car Demand


While gold has been long considered among the most valued and highly esteemed precious minerals, the yellow metal has seen its prices fall while another precious mineral has taken its place in terms of price. Palladium has officially enjoyed its longest bull run in the commodity’s history, having hit a record high yesterday of $1,329 per ounce, just eclipsing the price of gold at $1,289.50 per ounce last month.

The price of the precious metal has increased over 140 percent throughout the past two years. This is due mostly from the automobile industry, as more than 70 percent of palladium’s demand comes from catalytic converters for cars. With Europeans moving after from diesel vehicles, tighter emission regulations in China, and the general trend towards hybrid cars growing stronger every year, the demand for these catalysts has only risen.

In addition to these factors, China’s plan to boost domestic spending items like home appliances and automobiles is helping push demand for the mineral. According to Reuters, U.S.-China trade talks today ended with the Chinese promising to buy more U.S. goods.

We are getting an idea that there is a potential trade deal between China and the United States and some internal stimulus within China,” said TD Securities analyst and head of commodity strategies Bart Melek. “That ultimately means better consumption of vehicles in China and broadly in the emerging markets,” while adding that the increased demand for palladium comes at a time when the market is already tight supply wise. Palladium supplies have been trailing over the past few years, with deficits predicted to continue for the next few years.

Another possibility, however, is that the record high prices could lead to a substitution toward more use of palladium’s sister metal, platinum, in car catalysts. Norilsk Nickel, the world’s largest palladium producer, has said that its supply of the precious mineral will remain roughly the same until 2020, which newer projects not coming into production well into 2025.

At the same time, however, analysts estimate the most of the growth in car sales is coming from electric vehicles. Unlike their hybrid and petrol counterparts, electric cars don’t use catalysts. As a new line of cheaper electric cars are expected to hit the market this year, demand for palladium-rich catalysts could decrease. Additionally, car sales fell in China for the six-consecutive month, a poor sign for the world’s largest car market.

The expectation of the supply-demand issue is going to continue and accelerate…The supply is not going to be able to reach demand,” added Walter Pehowich, vice president of investment services at Dillon Gage Metals. “The next level of resistance (for spot palladium) will be around the 1,342 level.”

Palladium’s strong performance comes as gold suffers a lackluster year, dropping from $1,366.50 in January to $1,180.80 in August before ending 2018 just below the $1,300 level. Silver has had a strong two weeks, but still spent most of 2018 falling in price. This trend of declining precious metals extended to platinum, which suffered a similar fate of declining values. Much of this was attributed to the strong performance of U.S. equities for most of the year, with the last few weeks of instability causing these commodities to regain some of their value as market confidence waned.