Palladium has taken the spotlight over the past few months as it eclipsed gold’s position as the worlds most precious metal last year. While gold had seen significant price increases over the past weeks, the difference in price between is still growing. Today, palladium prices broke the $1,500 barrier, setting a record high price amidst growing global shortages.
Spot palladium increase around 1.7 percent today, sitting at $1,505.46 an ounce in London. The metal has tripled since January 2016, with many Wall Street analysts expecting further gains are in store. According to Citigroup analysts, it wouldn’t be surprising if prices hit $1,600 in the near future as global deficits are expected to “widen dramatically” this year.
“Until you get an increase in supply coming onstream, which isn’t going to happen for a few years yet, this is going to result in a tight market and prices generally trending higher,” said Philip Klapwijk, managing director of Precious Metals Insights.
Other analysts expect the price increase to last multiple years. Suki Cooper, precious metals analyst at Standard Chartered Bank, said on CNBC that “Palladium’s deficit is likely to persist for at least the next couple of years and there’s limited opportunity to ease the market’s tightness.”
At the same time, investors have been waiting for the minutes from the U.S. Federal Reserve’s last meeting which was released today. With the central bank taking a dovish stance towards rate hikes, this has further spurred stock and commodity prices.
Palladium is mainly used as a component in catalytic converters used in electric vehicles. Another precious metal used in catalytic converter building, platinum, is cheaper, with many companies expressing interest that they will pivot to using more platinum as the price of palladium continues to rise. However, many have said that this risk remains small, even as the price gap between the two rises. There are many hurdles to overcome when it comes to making such a transition, including the R&D, registering the technology, as well as eventual implementation. All these things could take years, meaning that it’s hard for companies to pivot so quickly.
The main global producers of palladium are Russia and South Africa. More than 80 percent comes as a by-product of nickel mines in Russia, with South African extraction also being a secondary product of their existing platinum mines. This means that palladium supplies largely depend on extraction efficiency and investments in other mineral mines.
Despite being one of the largest producers of the mineral, Russian stockpiles over the precious metal seem to be exhausted, with many guessing that country’s 11.5-million-ounce reserve is all but dried up.
Demand for electric vehicles is expected to increase over the coming years, with new regulations encouraging these over conventional vehicles. Other precious minerals used in electric vehicle construction, such as copper, have also seen strong increases over the past few weeks, with the red metal now reaching a 7-month high.
The general consensus currently is that palladium prices will continue to rise for the next few months, likely breaching the $1,600 point soon. From that point, however, some estimate that over the long-term prices will settle back down, a prospect that remains a distant possibility for speculators and auto-makers alike.