For many commodities investors in the markets, the ongoing palladium price bull run has been an exciting phenomenon especially as the precious metal continues to blow through price barriers. Having recently broken through $1,500, investors were surprised when palladium prices jumped $30 dollars in one day, breaking the $1,600 mark and reaching record highs in an unexpected move. The development came in response to news regarding increased auto demand in the sector.
Much of this increase in demand came from Russia, which is considering a ban on export of precious metal scraps to promote domestic refining of materials. This would make a big impact on the already tight global palladium supplies, which has been fueling much of this increase in price. At the same time, last week saw the US authorities order Fiat Chrysler to recall 965,000 cars over failed emissions tests, threatening to file a consumer class action lawsuit over the delays.
As a major component in catalytic converters used to reduce emissions in automobiles, it’s expected that over 100,000 ounces of palladium will be needed to bring the one million or so recalled vehicles up to emission standards, which was the second factor propelling the price of palladium to record levels.
“Palladium is now a leader in precious metals; price makes news and [the] media discovered it,” said George Gero, managing director with RBC Wealth Management. “I expect more of the same. I expect tightness. I expect continued higher prices as we see less bars coming to the [New York Mercantile) Exchange for delivery.”
Around 90 percent of the world’s palladium output comes as a by-product of platinum mines located in South Africa, alongside nickel mines in Russia. While there’s been a deficit in the market for several years, prices have only increased relatively recently. Much of this has been because the markets figured that the Russian government has held a strong reserve supply of palladium. However, most estimates figure that this reserve is now all but exhausted, and with few reserves of the precious metal still out there, there’s been little to slow down palladium’s drastic ascension as it eclipsed gold for the most precious metal out there.
Various financial institutions had their own thoughts regarding the precious metal’s recent jump. “Palladium has rapidly run on a broad supply shortage, seeing prices rise almost 90% since the bull run accelerated from August last year,” said a research note from commodities brokerage SP Angel. TD Securities added their own commentary to the palladium situation, saying that “in addition to the growing supply angst, large automakers have announced price cuts to their vehicles sold in China after the nation announced that it will reduce the VAT [value-added] tax by three points — spurring hopes that car sales in the Middle Kingdom, which have been horrible of late, could see a path towards recovery.”
At the same time, demand for Palladium’s sister metals, platinum and rhodium, have been steadily increasing. The former currently is sitting at $836 an ounce, used mainly in catalysts for diesel-powered vehicles. While a potential substitute for palladium in converters, such technology is still a few years away from mass implementation. Rhodium has also been drastically surging in price, reaching decade-long highs and breaching the $3,000 per ounce price mark.