Palladium has seen it’s prices skyrocket over the past year, almost doubling in value as supplies of the precious metal continue to fall amidst growing demand from automakers. However, the growing popularity and excitement surrounding the commodity have led to some in the financial community calling this rise a “bubble,” with one of the world’s leading palladium producers has gone on to say exactly that.
When Anglo American’s chief executive called the current price of the commodity a “bubble,” palladium prices fell, with futures prices dropping as much as $100 per ounce.
Mark Cutifani, CEO of Anglo American, spoke at the Financial Times Commodities Global Summit recently where he shared his opinion on the palladium markets. He went on to say that automakers could replace palladium with cheaper precious metals such as platinum in their catalytic converters, something that many previously stated would take at least a couple of years for such a change to take place.
“It is a bubble but . . . as new models get developed in the auto industry, adjustments will take place and maybe there will be some substitution there,” said Cutifani according to The Financial Times. “Palladium will stick around these sorts of levels for a while because the cost of changing is probably not worth the change. But over time it will change and platinum will come roaring back.”
He said the high palladium prices would not be tempting Anglo American to increase its existing production in South Africa, which is one of the only countries alongside Russia which produces the majority of the global palladium supply. Anglo American is currently the largest producer of the commodity after Russia’s domestic Norilsk Nickel. Currently, the two companies produce palladium as a by-product in platinum and nickel mining operations, with supplies of those metals being closely correlated with one another. “The world doesn’t need a lot more PGMs [platinum-group metals] at the moment,” Cutifani added. “We will not do anything to interrupt the market and the market dynamic as much as we can.”
The result of this news alongside other factors led to a drastic price drop in palladium. Prices dropped 6 percent on Wednesday after rallying to record highs around $1,620.52 last week. “Net longs have stayed steady in palladium for the better part of six months and this surprising retreat in gold seems to have triggered profit taking in palladium. It is a very illiquid market which magnifies the price moves,” said Tai Wong, head of base and precious metals derivatives trading at BMO according to CNBC. “The sudden selling looks like long liquidation after gold failed to rally in the face of sharply lower yields and the U.S dollar has been stubbornly bid.”
Earlier this month, Goldman Sachs warned investors that the massive bull run that commodities prices have seen could decline throughout 2019, with palladium being one of the main targets for a future decline. The main driver for price increases has come largely from the global appetite drive from automakers, with some reports indicating that tougher European and Asian environmental inspection rules increasing the demand for environmentally friendly catalytic converters. Currently, demand is expected to eclipse supplies by around 1 million ounces this year, especially since supply reserves formerly held by the Russian government seem to be all but exhausted.